Comment

In simulating the long-run effects of changes in protection, Abayasiri-Silva and Horridge (hereafter A-S and H) reach a striking conclusion: ‘AGE models which assume CRTS and perfect competition [PC] also treat some types of IRTS and imperfect competition [IPC] quite accurately’. This result can be understood via Figure 14.7, whose axes indicate the number of firms (N) in an industry and the average markup (R) defined by <math display='block'> <mrow> <mi>R</mi><mo>=</mo><mrow><mo>(</mo> <mrow> <mrow><mi>P</mi><mo>/</mo><mi>M</mi></mrow> </mrow> <mo>)</mo></mrow><mo>&#x2212;</mo><mn>1</mn></mrow> </math> ]]</EquationSource><EquationSource Format="TEX"><![CDATA[$$R = \left( {{P \mathord{\left/ {\vphantom {P M}} \right. \kern-\nulldelimiterspace} M}} \right) - 1$$ where P is product price and M is variable cost per unit of output.