Notes: Right-Panel: firm productivity and optimal quality. The curve AA depicts the profile of domestic quality; the curve BB depicts the profile in foreign markets. $λmin$ and $λexp$ are the entry cutoffs into domestic and export markets, respectively. The solid curve shows the profile of average quality. Left-Panel: optimal quality and the ratio of engineers to blue-collar workers in employment. The curve AA corresponds to the ratio utilized in the production for the domestic market and the curve BB, to the ratio utilized in the production for foreign markets. The solid curves depict the average ratio for different firms.