Draw a two-country, two product trade model in which production in both
industries is subject to increasing returns to scale. That is, draw diagrams
for two countries in which the possibilities-possibilities frontier reflects
increasing returns to scale. Then make additional assumptions (clearly
stated) and show how trade between the two countries affects well-being in
both countries. Does trade under increasing returns to scale still make both
countries better off, as the constant-returns-to-scale H-O model shows?
Answer this question using both your diagram and an accompanying verbal
explanation.