Competitve producers operating constant-returns technology earn zero profit in equilibrium. For the GTAP producer, the value of output to the firm equals the value of sales in the domestic and export markets net of applicable indirect taxes. Costs of production include factor inputs (taxed at rate tF) and intermediate inputs (taxed at rate tID):
Zero profit conditions apply to trade activities as well as production. In equilibrium, the value of imports at the domestic cif price therefore equals the fob price gross of export tax, the transportation margin and the applicable tariff:
Armington aggregation functions transform domestic and imported goods into composite goods for intermediate demand, public sector demand and private demand. Zero profit for these activites provide the following equilibrium identities:
in which
is the unit cost function defined by the constant-elasticity-of-substitution aggregate of domestic and imported inputs.