Final Exam questions econ
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Answer: $5/ton. Page Ref: 173-178 Difficulty: Easy
19) Refer to above figure. While selling exports it would also maximize its domestic sales by equating its marginal (opportunity) cost to its marginal revenue of $5. How much steel would the firm sell domestically, and at what price?
Answer: 4 million tons at $10/ton. Page Ref: 173-178 Difficulty: Easy
1) If a firm's output more than doubles when all inputs are doubled, production is said to occur under conditions of A) increasing returns to scale. B) imperfect competition. C) intra-industry equilibrium. D) constant returns to scale E) decreasing returns to scale.
Answer: A Page Ref: 146-147 Difficulty: Easy
2) One advantage of the specialization that results from international trade is that countries can take advantage of A) scale economies. B) production diversification C) smaller countries. D) taste reversals. E) lower transport costs.
Answer: A Page Ref: 146-147 Difficulty: moderate
3) When there are external economies of scale, an increase in the size of the market will A) increase the number of firms and lower the price per unit. B) increase the number of firms and raise the price per unit. C) decrease the number of firms and raise the price per unit. D) decrease the number of firms and lower the price per unit. E) not affect the number of firms, but will lower the price per unit.
Answer: A Page Ref: 147-148 Difficulty: Easy
6) External economies of scale arise when the cost per unit A) falls as the industry grows larger and rises as the average firm grows larger. B) rises as the industry grows larger and falls as the average firm grows larger. C) falls as the industry and the average firm grows larger. D) remains constant over a broad range of output. E) rises as the industry and the average firm grows larger.
Answer: A Page Ref: 147-148 Difficulty: Easy
7) Internal economies of scale arise when the cost per unit A) falls as the average firm grows larger. B) rises as the industry grows larger. C) falls as the industry grows larger. D) rises as the average firm grows larger. E) remains constant over a broad range of output.
Answer: A Page Ref: 147-148 Difficulty: Easy
8) Where there are internal economies of scale, the scale of production possible in a country is constrained by A) the size of the domestic plus the foreign market. B) the size of the country. C) the size of the trading partner's country. D) the size of the domestic market. E) the size of the foreign market.
Answer: A Page Ref: 147-148 Difficulty: Easy
12) External economies of scale will ________ average cost when output is ________ by ________. A) reduce; increased; the industry B) reduce; increased; a firm C) increase; increased; a firm D) increase; increased; the industry E) reduce; reduce; the industry
Answer: A Page Ref: 147-148 Difficulty: moderate
2) The existence of internal economies of scale A) cannot be associated with a perfectly competitive industry. B) may be associated with a perfectly competitive industry. C) is associated only with sophisticated products such as aircraft. D) cannot form the basis for international trade. E) focuses more on the industry than individual firms.
Answer: A Page Ref: 147-148 Difficulty: moderate
4) If some industries exhibit internal increasing returns to scale in each country, we should not expect to see A) perfect competition in these industries. B) intra-industry trade between countries. C) inter-industry trade between countries. D) high levels of specialization in both countries. E) increased productivity in both countries.
Answer: A Page Ref: 147-148 Difficulty: moderate
7.2 Economies of Scale and Market Structure 1) The existence of external economies of scale A) may be associated with a perfectly competitive industry. B) cannot be associated with a perfectly competitive industry. C) tends to result in one huge monopoly. D) tends to result in large profits for each firm. E) focuses more on individual firms than the industry as a whole.
Answer: A Page Ref: 147-148 Difficulty: moderate
9) Internal economies of scale will ________ average cost when output is ________ by ________. A) reduce; increased; a firm B) increase; increased; a firm C) reduce; increased; the industry D) increase; increased; the industry E) reduce; reduce; the industry
Answer: A Page Ref: 147-148 Difficulty: moderate
2) External economies of scale often arise because similar firms A) locate in the same geographic region. B) collude to fix prices and increase profits. C) have excellent internal logistics. D) agree to cooperate to expand global trade. E) have economies of scale in production.
Answer: A Page Ref: 148-151 Difficulty: Easy
4) The long-run market supply curve in the presence of internal economies of scale is ________, and in the presence of external economies of scale, it is ________. A) downward sloping; downward sloping B) upward sloping; horizontal C) horizontal; upward sloping D) downward sloping; horizontal E) upward sloping; downward sloping
Answer: A Page Ref: 148-151 Difficulty: Easy
5) If output is increased in the long-run, average production costs in the presence of internal economies of scale will ________, and in the presence of external economies of scale, will ________. A) decrease; decrease B) increase; remain constant C) remain constant; increase D) decrease; remain constant E) increase; decrease
Answer: A Page Ref: 148-151 Difficulty: Easy
. Any business in any location can access specialized knowledge, labor, and materials. It is likely that these virtual economic communities will result in A) external economies of scale. B) internal economies of scale. C) consolidation of industries into a small number of powerful firms. D) suppression of innovations and collusive behavior, driving up prices. E) government intervention and regulation.
Answer: A Page Ref: 148-151 Difficulty: moderate
4) A learning curve relates ________ to ________ and is a case of ________ returns. A) unit cost; cumulative production; dynamic increasing returns B) output per time period; long-run marginal cost; dynamic increasing returns C) unit cost; cumulative production; dynamic decreasing returns D) output per time period; long-run marginal cost; dynamic decreasing returns E) labor productivity; education; increasing marginal returns
Answer: A Page Ref: 152-158 Difficulty: Easy
5) The learning curve describes the ________ relationship between ________ and ________. A) inverse; unit cost; cumulative output B) direct; unit cost; cumulative output C) inverse; education; annual income D) direct; education; annual income E) direct; education; labor productivity
Answer: A Page Ref: 152-158 Difficulty: Easy
6) If two countries begin trade and both produce a product subject to internal economies of scale, then the country with the ________ rate of production will ________ production until it controls ________ of the market. A) higher; increase; 100% B) higher; increase; 50% C) lower; increase; 100% D) lower; increase; 50% E) higher; decrease; 0%
Answer: A Page Ref: 152-158 Difficulty: Easy
7.4 External Economies and International Trade 1) If two countries begin trade and both produce a product subject to external economies of scale, then the country with the ________ rate of production will ________ production until it controls ________ of the market. A) higher; increase; 100% B) higher; increase; 50% C) lower; increase; 100% D) lower; increase; 50% E) higher; decrease; 0%
Answer: A Page Ref: 152-158 Difficulty: Easy
3) In the presence of external economies of scale, trade A) may or may not improve welfare in both countries. B) will unambiguously improves welfare in both countries. C) will unambiguously worsens welfare in both countries. D) will unambiguously worsen welfare in the exporting country and improve welfare in the importing country. E) will unambiguously improve welfare in the exporting country and worsen welfare in the importing country.
Answer: A Page Ref: 152-158 Difficulty: moderate
3) Patterns of interregional trade are primarily determined by ________ rather than ________ because factors of production are generally ________. A) external economies; natural resources; mobile B) internal economies; external economies; mobile C) external economies; population; immobile D) internal economies; population; immobile E) population; external economies; immobile
Answer: A Page Ref: 158-161 Difficulty: Easy
4) The primary determinant of patterns of interregional trade is A) accidents of history. B) resource allocations. C) factor abundance. D) weather. E) centralized optimization.
Answer: A Page Ref: 158-161 Difficulty: Easy
7.5 Interregional Trade and Economic Geography 1) Restaurant meals are an example of a ________ good and clothing is an example of a ________ good. The pattern of interregional trade is determined primarily by ________. A) nontraded; traded; external economies. B) traded; nontraded; internal economies C) nondurable; durable; natural resource D) durable; nondurable; natural resources E) consumer; style; population
Answer: A Page Ref: 158-161 Difficulty: Easy
2) The share of ________ goods in employment is ________ across the country. The share of ________ goods in employment is ________ across the country. A) nontraded; uniform; traded; variable B) traded; uniform; nontraded; variable C) durable; uniform; nondurable; variable D) nondurable; uniform; durable; variable E) nontraded; variable; traded; uniform
Answer: A Page Ref: 158-161 Difficulty: moderate
3) Modeling trade in imperfectly competitive industries is problematic because A) there is no single generally accepted model of behavior by imperfectly competitive firms. B) there are no models of imperfectly competitive behavior. C) it is difficult to find an imperfectly competitive firm in the real world. D) collusion among imperfectly competitive firms makes usable data rare. E) there is only a single model of imperfect competition (monopoly) but imperfect competition can take many forms in the real world.
Answer: A Page Ref: 165-166 Difficulty: Easy
International Economics, 10e (Krugman/Obstfeld/Melitz) Chapter 8 Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises 8.1 The Theory of Imperfect Competition 1) A monopolistic firm A) will never sell a product whose demand is inelastic at the quantity sold. B) can sell as much as it wants for any price it determines in the market. C) cannot determine the price, which is determined by consumer demand. D) cannot sell additional quantity unless it raises the price on each unit. E) will always earn a profit in the long run.
Answer: A Page Ref: 166-168 Difficulty: Easy
19) Under oligopoly, firms' pricing policies are ________ and, under monopolistic competition, they are ________. A) interdependent; independent B) independent; interdependent C) cooperative; uncooperative D) uncooperative; cooperative E) profit maximizing; revenue maximizing
Answer: A Page Ref: 168-172 Difficulty: moderate
20) Under the model of monopolistic competition, a(an) ________ in the number of firms in the industry will cause ________ to ________. A) increase; average price; decrease B) increase; average price; increase C) increase; average cost; decrease D) decrease; markup; decrease E) increase; marginal cost; decrease
Answer: A Page Ref: 168-172 Difficulty: moderate
21) Under the model of monopolistic competition, a(an) ________ in the number of firms in the industry will cause ________ to ________. A) increase; markup; decrease B) increase; average price; increase C) increase; average cost; decrease D) decrease; markup; decrease E) increase; marginal cost; decrease
Answer: A Page Ref: 168-172 Difficulty: moderate
2) Monopolistic competition is associated with A) product differentiation. B) price-taking behavior. C) explicit consideration at the firm level of the strategic impact of other firms' pricing decisions. D) high profit margins in the long run. E) increasing returns to scale.
Answer: A Page Ref: 169-173 Difficulty: Easy
6) If there are a large number of firms in a monopolistically competitive industry A) long-run profit will be equal to zero. B) the country in which the firms are located can be expected to export the goods they produce. C) there will be barriers to entry that prevent addition firms from entering the industry. D) the firms will converge production on a standardized product. E) there will be a small number of firms that are very large and the rest will be very small.
Answer: A Page Ref: 170-172 Difficulty: Easy
2) If the market for products produced by firms in a monopolistically competitive industry becomes ________, then there will be ________ firms and each firm will produce ________ output and charge a ________ price. A) larger; more; more; lower B) larger; fewer; more; lower C) larger; fewer; more; higher D) larger; more; more; higher E) larger; more; less; higher
Answer: A Page Ref: 173-175 Difficulty: Easy
10) A product is produced in a monopolistically competitive industry with scale economies. If this industry exists in two countries, and these two countries engage in trade with each other, then we would expect A) each country will export different varieties of the product to the other. B) the country in which the price of the product is lower will export the product. C) the country with a relative abundance of the factor of production in which production of the product is intensive will export this product. D) neither country will export this product since there is no comparative advantage. E) the countries will trade only with other nations they are not in competition with.
Answer: A Page Ref: 173-178 Difficulty: Easy
11) Two countries engaged in trade in products with no scale economies, produced under conditions of perfect competition, are likely to be engaged in A) inter-industry trade. B) monopolistic competition. C) intra-industry trade. D) Heckscher-Ohlin trade. E) oligopolistic competition
Answer: A Page Ref: 173-178 Difficulty: Easy
12) Two countries engaged in trade in products with scale economies, produced under conditions of monopolistic competition, are likely to be engaged in A) intra-industry trade. B) price competition. C) inter-industry trade. D) Heckscher-Ohlinean trade. E) immiserizing trade.
Answer: A Page Ref: 173-178 Difficulty: Easy
13) We often observe "pseudo-intra-industry trade" between the United States and Mexico. Actually, such trade is consistent with A) comparative advantage associated with Heckscher-Ohlin model. B) oligopolistic markets. C) optimal tariff issues. D) the Ricardian model of trade. E) the specific factors model of trade.
Answer: A Page Ref: 173-178 Difficulty: Easy
14) Intra-industry trade will tend to dominate trade flows when which of the following exists? A) small differences between relative country factor availabilities B) large differences between relative country factor availabilities C) homogeneous products that cannot be differentiated D) constant cost industries E) uneven distribution of abundant resources between two countries
Answer: A Page Ref: 173-178 Difficulty: Easy
20) If the market for products produced by firms in a monopolistically competitive industry becomes ________, then there will be ________ firms and each firm will produce ________ output and charge a ________ price. A) smaller; fewer; less; higher B) smaller; more; less; higher C) smaller; more; less; lower D) smaller; fewer; less; lower E) smaller; fewer; more; higher
Answer: A Page Ref: 173-178 Difficulty: Easy
3) International trade based on external scale economies in both countries is likely to be carried out by A) a relatively large number of price competing firms. B) a relatively small number of price competing firms. C) a relatively small number of imperfect competitors. D) monopolists in each country. E) a large number of oligopolists in each country.
Answer: A Page Ref: 173-178 Difficulty: Easy
4) International trade based solely on internal scale economies in both countries is likely to be carried out by A) monopolists in each country. B) a relatively large number of price competing firms. C) a relatively small number of price competing firms. D) a relatively small number of imperfect competitors. E) a large number of oligopolists in each country.
Answer: A Page Ref: 173-178 Difficulty: Easy
5) A monopoly firm engaged in international trade will A) equate marginal costs with marginal revenues in both domestic and foreign markets. B) equate average to local costs. C) equate marginal costs with foreign marginal revenues. D) equate marginal costs with the highest price the market will bear. E) equate marginal costs with the relative world prices.
Answer: A Page Ref: 173-178 Difficulty: Easy
7) A firm in long-run equilibrium under monopolistic competition will earn A) zero economic profits because of free entry. B) positive monopoly profits because each sells a differentiated product. C) positive oligopoly profits because each firm sells a differentiated product. D) negative economic profits because it has economies of scale. E) positive economic profit if it engages in international trade.
Answer: A Page Ref: 173-178 Difficulty: Easy
8) An industry is characterized by scale economies, and exists in two countries. Should these two countries engage in trade such that the combined market is supplied by one country's industry, then A) consumers in both countries would have more varieties and lower prices. B) consumers in both countries would have higher prices and fewer varieties. C) consumers in the importing country only would have higher prices and fewer varieties. D) consumers in the exporting country only would have higher prices and fewer varieties. E) consumers in both countries would have fewer varieties at lower prices.
Answer: A Page Ref: 173-178 Difficulty: Easy
15) Trade without serious income distribution effects is most likely to happen A) in sophisticated manufactures trade between rich countries. B) in simple manufactures trade between developing countries. C) in sophisticated manufactures trade between rich and poor countries. D) in agricultural trade between rich countries. E) in labor-intensive industries like clothing.
Answer: A Page Ref: 173-178 Difficulty: moderate
6) A monopoly firm will maximize profits by producing where A) marginal revenue is the same in domestic and foreign markets. B) prices are the same in domestic and foreign markets. C) marginal revenue is higher in foreign markets. D) marginal revenue is higher in the domestic market. E) total revenue from domestic and foreign sales is maximized.
Answer: A Page Ref: 173-178 Difficulty: moderate
9) An industry is characterized by scale economies and exists in two countries. In order for consumers of its products to enjoy both lower prices and more variety of choice A) the two countries must engage in international trade with each other. B) each country's marginal cost must equal that of the other country. C) the marginal cost of this industry must equal marginal revenue in the other. D) the monopoly must lower prices in order to sell more. E) they must combine to become a multinational corporation.
Answer: A Page Ref: 173-178 Difficulty: moderate
12) Imperfectly competitive firms have a demand curve that ________ and a marginal revenue curve that ________ and is ________ the demand curve. A) slopes downward; slopes downward; below B) is horizontal; is horizontal; the same as C) slopes downward; is horizontal; above D) is horizontal; slopes downward; below E) slopes downward; slopes downward; the same as
Answer: A Page Ref: 177-178 Difficulty: Easy
21) In an industry where firms experience internal scale economies, the long-run cost of production will depend on A) the size of the market. B) the size of the labor force. C) whether the country engages in intra-industry trade. D) individual firms' fixed costs. E) whether the country engages in inter-industry trade.
Answer: A Page Ref: 177-178 Difficulty: Easy
4) The simultaneous export and import of widgets by the United States is an example of A) intra-industry trade. B) increasing returns to scale. C) imperfect competition. D) inter-industry trade. E) the effect of a monopoly on international trade.
Answer: A Page Ref: 177-178 Difficulty: Easy
5) When a country both exports and imports a type of commodity, the country is engaged in A) intra-industry trade. B) increasing returns to scale. C) imperfect competition. D) inter-industry trade. E) an attempt to monopolize the relevant industry.
Answer: A Page Ref: 177-178 Difficulty: Easy
8) If a firm increases its output in the ________ and unit costs ________, then the firm is experiencing ________ of scale. A) long-run; decrease; economies B) short-run; decrease; economies C) long-run; decrease; diseconomies D) short-run; decrease; diseconomies E) long-run; increase; economies
Answer: A Page Ref: 177-178 Difficulty: Easy
9) If a firm increases its output in the ________ and unit costs ________, then the firm is experiencing ________ of scale. A) long-run; increase; diseconomies B) short-run; decrease; economies C) long-run; decrease; diseconomies D) short-run; decrease; diseconomies E) long-run; increase; economies
Answer: A Page Ref: 177-178 Difficulty: Easy
10) If a firm that uses a production process that yields economies of scale charges a price equal to ________, then profit will be ________. A) marginal cost; negative B) marginal revenue; maximized C) marginal cost; maximized D) marginal revenue; positive E) marginal cost; positive
Answer: A Page Ref: 177-178 Difficulty: moderate
11) Firms that produce ________ products must be ________ competitive. A) differentiated; imperfectly B) differentiated; perfectly C) standardized; imperfectly D) standardized; perfectly E) exported; imperfectly
Answer: A Page Ref: 177-178 Difficulty: moderate
8.2 Monopolistic Competition and Trade 1) Intra-industry trade is most common in the trade patterns of A) the industrial countries of Western Europe. B) the developing countries of Asia and Africa. C) raw material producers. D) China with the rest of the world. E) labor-intensive products.
Answer: A Page Ref: 179 Difficulty: Easy
2) In the model of monopolistic competition, if firms have ________ average cost curves, then opening trade will cause ________ firms to ________ the industry. A) different; less efficient; exit B) different; more efficient; enter C) symmetric; less efficient; exit D) symmetric; more efficient; enter E) symmetric; less efficient; enter
Answer: A Page Ref: 181-185 Difficulty: Easy
3) In the model of monopolistic competition, compared to a firm with a higher marginal cost, a firm with a lower marginal cost will set a ________ price, produce ________ output, and earn ________ profits. A) lower; more; more B) higher; more; more C) lower; less; less D) higher; less; less E) higher; less; more
Answer: A Page Ref: 181-185 Difficulty: Easy
4) In the model of monopolistic competition, compared to a firm with a lower marginal cost, a firm with a higher marginal cost will set a ________ price, produce ________ output, and earn ________ profits. A) higher; less; less B) lower; more; more C) higher; more; more D) lower; less; less E) higher; less; more
Answer: A Page Ref: 181-185 Difficulty: Easy
5) In the model of monopolistic competition, an increase in industry output will cause individual firms' demand curves to become ________, which will ________ demand for higher-priced goods and ________ demand for lower-priced goods. A) flatter; reduce; increase B) steeper; reduce; increase C) flatter; increase; reduce D) steeper; increase; reduce E) horizontal; reduce; reduce
Answer: A Page Ref: 181-185 Difficulty: Easy
6) In the model of monopolistic competition, an increase in industry output will ________ producers of ________ higher-priced goods and ________ producers of lower-priced goods. A) harm; benefit B) benefit; harm C) harm; harm D) benefit; benefit E) benefit; have no effect on
Answer: A Page Ref: 181-185 Difficulty: Easy
7) In the model of monopolistic competition, an increase in industry output will ________ market shares and ________ profits of producers of higher-priced goods and will ________ market shares and ________ profits of producers of lower-priced goods. A) reduce; reduce; increase; increase B) increase; increase; reduce; reduce C) increase; reduce; increase; reduce D) reduce; increase; reduce; increase E) reduce; increase; increase; reduce
Answer: A Page Ref: 181-185 Difficulty: Easy
8.3 Firm Responses to Trade: Winners, Losers, and Industry Performance 1) In the model of monopolistic competition, if firms have ________ average cost curves, then opening trade will ________ the total number of firms and ________ the average price. A) downward sloping; decrease; decrease B) downward sloping; decrease; increase C) downward sloping; increase; decrease D) upward sloping; decrease; increase E) upward sloping; increase; decrease
Answer: A Page Ref: 181-185 Difficulty: moderate
2) In the model of monopolistic competition, trade costs between countries cause A) marginal costs of exported goods to exceed the marginal costs of goods sold domestically. B) marginal costs of goods sold domestically to exceed the marginal costs of exported goods. C) all firms that can earn a profit on domestic sales to export their goods at lower prices. D) all firms that can earn a profit on domestic sales to export their goods at higher prices. E) countries to negotiate the elimination of trade costs by mutual subsidization of trade.
Answer: A Page Ref: 185-187 Difficulty: Easy
3) In the model of monopolistic competition, trade costs between countries cause A) some firms that can earn a profit on domestic sales to refrain from exporting their goods. B) prices of goods sold domestically to exceed the prices of exported goods. C) marginal costs of goods sold domestically to exceed the marginal costs of exported goods. D) all firms that can earn a profit on domestic sales to export their goods at higher prices. E) countries to negotiate the elimination of trade costs by mutual subsidization of trade.
Answer: A Page Ref: 185-187 Difficulty: Easy
8.4 Trade Costs and Export Decisions 1) In the model of monopolistic competition, trade costs between countries will cause domestic and foreign markets to have ________ prices, ________ quantities sold, and ________ profit levels. A) different; different; different B) identical; different; different C) different; different; identical D) identical; different; identical E) identical; identical; different
Answer: A Page Ref: 185-187 Difficulty: Easy
2) If an industry is imperfectly competitive, and markets are segmented then A) a firm may find that it is profitable to engage in dumping. B) a firm may find that international trade is unprofitable. C) a firm may find that it should promote scale economies. D) a firm may find that it has lost its comparative advantage. E) a firm may find that it should become more specialized.
Answer: A Page Ref: 188-190 Difficulty: Easy
3) Complaints are often made to the International Trade Commission concerning foreign "dumping" practices. These complaints typically claim that A) U.S. firms are harmed by the unfair pricing of foreign exporters. B) foreign companies are charging exorbitant prices that are higher than the true value of the products. C) foreign companies are charging prices that are lower than prices they charge countries other than the U.S. D) U.S. consumers are harmed by the lack of quality control or health concerns in foreign countries. E) U.S. consumers cannot differentiate between the foreign and domestic goods.
Answer: A Page Ref: 188-190 Difficulty: Easy
8.5 Dumping 1) The most common form of price discrimination in international trade is A) dumping. B) non-tariff barriers. C) Voluntary Export Restraints. D) preferential trade arrangements. E) product boycotts.
Answer: A Page Ref: 188-190 Difficulty: Easy
2) A corporation is considered a multinational ________ if ________. A) affiliate; more than 10% of its stock is held by a foreign company B) parent; more than 10% of its stock is held by a foreign company C) child; more than 10% of its stock is held by a foreign company D) child; more than 50% of its stock is held by a foreign company E) monopolist; it owns more than 50% of a foreign firm
Answer: A Page Ref: 190-194 Difficulty: Easy
4) When a multinational affiliate replicates production in a foreign country it is called ________ foreign direct investment. A) horizontal B) vertical C) transitional D) bisectional E) direct
Answer: A Page Ref: 190-194 Difficulty: Easy
5) When a multinational affiliate replicates elements of a production process in a foreign country it is called ________ foreign direct investment. A) vertical B) horizontal C) transitional D) bisectional E) direct
Answer: A Page Ref: 190-194 Difficulty: Easy
8.6 Multinationals and Outsourcing 1) A corporation is considered a multinational ________ if ________. A) parent; it owns more than 10% of a foreign firm B) parent; more than 10% of its stock is held by a foreign company C) child; more than 10% of its stock is held by a foreign company D) child; more than 50% of its stock is held by a foreign company E) monopolist; it owns more than 50% of a foreign firm
Answer: A Page Ref: 190-194 Difficulty: Easy
3) Consider the following two cases. In the first, a U.S. firm purchases 18% of a foreign firm. In the second, a U.S. firm builds a new production facility in a foreign country. Both are ________, with the first referred to as ________ and the second as ________. A) foreign direct investment (FDI) outflows; greenfield; brownfield B) foreign direct investment (FDI) inflows; greenfield; brownfield C) foreign direct investment (FDI) outflows; brownfield; greenfield D) foreign direct investment (FDI) inflows; brownfield; greenfield E) foreign direct investment (FDI); inflows; outflows
Answer: A Page Ref: 190-194 Difficulty: moderate
7.3 The Theory of External Economies 1) What is meant by an "industrial district" and what are the three main sources of the economic advantages derived from locating in such a district?
Answer: An industrial community is a geographical concentration of firms in the same industry. Silicon Valley and Bollywood are modern examples. The advantages are (1) specialized suppliers, (2) labor market pooling, and (3) knowledge spillovers. Page Ref: 148-151 Difficulty: moderate
5) The study of factors that influence both international and interregional trade is referred to as A) accidents of history. B) economic geography. C) factor abundance theory. D) weather analysis. E) centralized optimization.
Answer: B Page Ref: 158-161 Difficulty: Easy
10) Why is it that if an industry is operating under conditions of internal scale economies then the resultant equilibrium cannot be consistent with the pure competition model?
Answer: Because once one firm will becomes bigger than another, or if one firm began the industry, then no other firm will be able to match its per unit cost, so that they would be driven out of the industry. The firm would become a natural monopoly. Page Ref: 147-148 Difficulty: moderate
6) If the firms in a market have constant returns to scale internally while there are external economies of scale for the industry, a firm's long-run supply curve will be ________ and the long-run market supply curve will be ________. A) downward sloping; downward sloping B) upward sloping; horizontal C) horizontal; downward sloping D) downward sloping; horizontal E) upward sloping; downward sloping
Answer: C Page Ref: 148-151 Difficulty: Easy
7) If output is increased in the long-run, then in the presence of internal economies of scale the number of firms will ________, and in the presence of constant external returns to scale the number of firms will ________. A) decrease; decrease B) increase; remain constant C) remain constant; increase D) decrease; remain constant E) increase; decrease
Answer: C Page Ref: 148-151 Difficulty: Easy
8) If output is increased in the long-run, average production costs in the presence of internal diseconomies of scale will ________, and in the presence of external diseconomies of scale, will ________. A) decrease; decrease B) increase; remain constant C) remain constant; increase D) decrease; remain constant E) increase; decrease
Answer: C Page Ref: 148-151 Difficulty: Easy
16) An imperfectly competitive firm has the following total cost curve: C = 100 + 4Q. What is total cost equal to when Q = 10?
Answer: C = 100 + (4)(10) = 140 Page Ref: 167 Difficulty: moderate
17) An imperfectly competitive firm has the following total cost curve: C = 100 + 4Q. What is average total cost equal to when Q = 10?
Answer: C/Q = [100 + (4)(10)]/10 = 14 Page Ref: 167 Difficulty: moderate
4) If a firm's output doubles when all inputs are doubled, production is said to occur under conditions of A) increasing returns to scale. B) imperfect competition. C) intra-industry equilibrium. D) constant returns to scale E) decreasing returns to scale.
Answer: D Page Ref: 146-147 Difficulty: Easy
5) If a firm's output less than doubles when all inputs are doubled, production is said to occur under conditions of A) increasing returns to scale. B) imperfect competition. C) intra-industry equilibrium. D) constant returns to scale E) decreasing returns to scale.
Answer: E Page Ref: 146-147 Difficulty: Easy
18) An imperfectly competitive firm has the following total cost curve: C = 100 + 4Q. What is average fixed cost equal to when Q = 10?
Answer: F/Q = 100/10 = 10 Page Ref: 167 Difficulty: moderate
2) Explain why positive economies of scale in one (of two) sectors may establish a comparative advantage for the large (as compared to the small) country in the production of the commodity which exhibits positive scale economies.
Answer: In the case of the H-O model, the actual size of the country is irrelevant in the determination of the direction of trade (though it may affect the equilibrium terms of trade). When positive scale economies apply to the production of one product, the country that can devote more resources (in absolute terms) will be able to sell that product cheaper, and therefore will be more likely to gain a "revealed" comparative advantage in that product. This will be the country with more factors (both labor and capital)-the larger country. Page Ref: 152-158 Difficulty: difficult
7) Suppose that two countries, A and B, employ the same technology in the production of a good. External economies of scale apply in both countries. Analyze the effects of trade on long-run production levels if country A has a comparatively lower cost of production when trade begins.
Answer: Initially, country B will have a comparative advantage in production of the good. Over time, as production shifts to Country B, costs will decline there while increasing in country A. In the absence of market intervention, country B will have a monopoly. Note that no individual firm will have a monopoly unless internal economies of scale also apply. Page Ref: 152-158 Difficulty: moderate
5) The figure above represents the demand and cost functions facing a Brazilian Steel producing monopolist. The Brazilian firm is charging its foreign (U.S.) customers one half the price it is charging its domestic customers. Is this good or bad for the real income or economic welfare of the United States? Is the Brazilian firm engaged in dumping? Is this predatory behavior on the part of the Brazilian steel company?
Answer: It is good for U.S. customers.Yes, this is dumping if you define dumping as selling abroad at a price lower than domestically. No, it is not dumping if by dumping you mean selling below marginal cost. No, this is not predatory, since it is not being done in order to capture market share, but rather is "mere" static profit maximization behavior, as is expected of any self-respecting monopolist. Page Ref: 188-190 Difficulty: moderate
REMOVE
Answer: It would sell 10 million tons at $5/ton. Page Ref: 173-178 Difficulty: moderate
4) The figure above represents the demand and cost functions facing a Brazilian Steel producing monopolist. If it were unable to export, and was constrained by its domestic market, what quantity would it sell at what price?
Answer: It would sell 5 (million tons) at a price of $8/ton. Page Ref: 188-190 Difficulty: moderate
15) An imperfectly competitive firm has the following total cost curve: C = 100 + 4Q. What is marginal cost equal to when Q = 10?
Answer: MC = 4 for any Q Page Ref: 167 Difficulty: moderate
7) It is possible that trade based on external scale economies may leave a country worse off than it would have been without trade. Explain how this could happen.
Answer: One answer is that the terms of trade effects may dominate any other factors. Page Ref: 177-178 Difficulty: Easy
16) Imagine scale economies were not only external to firms, but were also external to individual countries. That is, the larger the worldwide industry (regardless of where firms or plants are located), the cheaper would be the per-unit cost of production. Describe what world trade would look like in this case.
Answer: Presumably each country would specialize in some component of the final product. This would result in in a high volume of intra-industry trade. Page Ref: 173-178 Difficulty: difficult
14) An imperfectly competitive firm has the following demand curve: Q = 100 - 2P. What is marginal revenue equal to when P = 40?
Answer: Q = 20, so MR = 40 - (20/2) = 30. Page Ref: 167 Difficulty: moderate
13) An imperfectly competitive firm has the following demand curve: Q = 100 - 2P. What is marginal revenue equal to when P = 30?
Answer: Q = 40, so MR = 30 - (40/2) = 10. Page Ref: 167 Difficulty: moderate
3) Why are increasing returns to scale and fixed costs important in models of international trade and imperfect competition?
Answer: There are many answers. Three of these are (a) Increasing returns to scale and high fixed costs may be inconsistent with perfect competition. In such a case, the initial autarkic state may be a suboptimal equilibrium. For example, relative prices may not equal marginal rates of transformation. It follows from this that a change in output compositions associated with trade may result in a national welfare for one or both trading countries that is inferior to that associated with the initial autarkic conditions. Hence no "gains from trade." (b) In a case of increasing scale economies at the firm or plant level, the determination of which product will be exported by which country is ex-ante indeterminate. Therefore, deriving clear implications concerning the effects of trade on income distributions such as may be derived from the Samuelson-Stolper Theorem is no longer generally possible. (c) Market structures containing positive scale economies and imperfect competition may allow for "two-way trade," or intra-industry trade. As in b. above, the various theorems derivable from the Heckscher-Ohlin model concerning directions of trade and income distributions are no longer generally applicable. Page Ref: 146-147 Difficulty: difficult
5) If a scale economy is the dominant technological factor defining or establishing comparative advantage, then the underlying facts explaining why a particular country dominates world markets in some product may be pure chance, or historical accident. Explain, and compare this with the answer you would give for the Heckscher-Ohlin model of comparative advantage.
Answer: This statement is true, since the reason the seller is a monopolist may be that it happened to have been the first to produce this product in this country. It may have no connection to any supply or demand related factors; nor to any natural or man-made availability. This is all exactly the opposite of the Heckscher-Ohlin Neo-Classical model's explanation of the determinants of comparative advantage. Page Ref: 147-148 Difficulty: difficult
11) Is it possible for an equilibrium that is consistent with purely competitive conditions to arise in an industry with positive scale economies? If so, explain how this could happen. If not, why not?
Answer: Yes. If the scale economies were external to the firm, then there is no reason why the firms may not be in perfect competition. Page Ref: 147-148 Difficulty: moderate
