B8

Question 1

in a perfectly competative market firms are price takers

Answer 1

true, their production choices do not effect the price of goods

Question 2

How does imperfect competition apear

Answer 2

When there are only a few companies in the industry or when a company produces goods that are differentiated in the eyes of the consumer

Question 3

internal economies of scale leads to imperfect competition and companies that view themselves as price setters

Answer 3

true, they will outcompete eachother or force diferentiation

Question 4

How much does a monopoly produce

Answer 4

Untill marginal cost equals marginal revenue

Question 5

Is the marginal revenue curve always bellow the demand curve

Answer 5

Yes becouse to sell an iditional unit it has to lower the price of all the goods thus marginal revenue decreases faster in proportion to the demand at the price

Question 6

will other firms be effected by one firms price setting in monopolistc competition

Answer 6

Not in a way that would make them change their own prices in response such as in oligopolies

Question 7

How does the number of firms in monopolistic competition affect price

Answer 7

Price decreases as competition intensifies

Question 8

How are costs effected by competition in monopolistic competition

Answer 8

More competition often leads to higher costs if we assume the companies are symmetrical as companies prodice less and are not able to take advantage of scale

Question 9

What is the equalibrium price in monopolistic competition

Answer 9

When price equals average cost as greater would attract more competition driving up costs and lesser would mean losses that forces some to leave

Question 10

How does opening up to trade effect monopolistic competition

Answer 10

It serves as an enlarging of the market that allows each firm all things equal the produce more and gain lower cost which then entices more competition which reduces the prices. Lower costs but lower prices better for consumers anyway

Question 11

What is intra industry trade

Answer 11

When two countries trade similar goods in an industry where there is monopolistic competition, the countries gain from trade as it leads to a bigger market, allowing them to cut costs but as it is monopolistic competition one country cannot take over the whole industry.

Question 12

Is there emperical evidence of intra industry trade

Answer 12

Yes, just look at the car market, consumers can enjoy the greater variety of cars and lower prices that comes from economies of scale

Question 12

How does opening up to trade affect productivity in the domestic industry

Answer 12

Weaker companies die as they cannot keep up with the competition while stronger companies expand in the larger market increasing productivity in the industry as a whole

Question 13

The symmetry assumption means that the companies in tue monopolistic competition trade model have the same cost curve and the same demand curve

Answer 13

True

Question 14

Most markets are perfectly integrated

Answer 14

No, there are often costs associated with trade

Question 15

Do bigger or smaller companies usually export

Answer 15

Bigger companies with their lower marginal costs are the ones that tend to export as the trade barriers are to high for small companies to export at a profit

Question 16

What is dumping

Answer 16

When a firm lowers its markup and so price on export markets compared to domestic markets, a practice considered to be unfair competition

Question 17

Can a company seek damages when a forign competitor is dimping

Answer 17

Yes, it usually comes in the form of an anti dumping duty scaled as the price diference if the markup

Question 18

Is there economical reasons to enforce anyi dumping laws

Answer 18

No, it is basically just rebranded protectionism

Question 19

How much of a domestic firm needs to be controlled by a foreign company to be considered multinational

Answer 19

10%

Question 20

What is greenfield fdi

Answer 20

When a domestic firm builds a facility abroad

Question 21

What are brownfield fdi

Answer 21

When a domestic firm buys 10% aka a controlling share of a foreign firm

Question 22

What is vertical fdi

Answer 22

When parts in the supply chain are produced abroad by a domestic company

Question 23

What is horizontal fdi

Answer 23

When additional facilities that does the same commercial activities as the ones home are created abroad by a domestic firm

Question 24

What is the proxity concentration tradeoff

Answer 24

The tradeoff between return to scale when having few facilities and the trade barriers avoided when producing in many facilities in close proximity to international markets

Question 25

Why would countries not do vertical forign investment

Answer 25

Becouse it comes with a high initial cost

Question 26

Explain the horizontal fdi decision

Answer 26

Is the vost and spread worth for skipping trade barriers

Question 27

Explain the horizontal fdi decision

Answer 27

To directly invest in foreign production facilities or not, attractive for large companies as it allows them to overcome the cost of trade but smaller firms might be better of establishing economies of scale in one location

Question 28

Explain the vertical fdi decision

Answer 28

As some countries have comparative advantage in some sectors it makes sense to adapt the supply chain to take advantage of these forces, it is however a substantial investment that some firms don’t initially afford

Question 29

What is the internationalization motive

Answer 29

The question why a firm chooses to own a part of the supply chain abroad instead of just purchasing their supplies

Question 30

What is outsourcing

Answer 30

When a company licenses a foreign company to take care of different stages in the supply chain

Question 31

What is offshoring

Answer 31

A term that includes both outsourcing and vertical foreign direct investment

Question 32

What is the difference between counting trade deficits or surplus at value added or gross value

Answer 32

The definite calculated at gross value is just imports vs exports to that country while value added just voumts the value added by the exporter. F.ex if an iphone is imported from china the US might pay a gross sum but that import is made by parts from corea that were designed by the home country making the value added and thus deficit to China in particular smaller than it seams

Question 33

Is outsourcing a common substitute for horizontal fdi

Answer 33

No, licensing your production technology to another involves the risk of loosing the edge over competition

Question 34

Is outsourcing a common substitute for vertical fdi

Answer 34

It may be, independent companies can serve multiple clients and then benefit from economies of scale. Local ownership also incentivizes alignment between the managers and the production process. On the other hand direct control offers greater control and lessens the risk costly renegotiation and conflicts

Question 35

Do companies that export also tend to offshore

Answer 35

Yes, there are substantial fixed costs associated with offshoring so the ones doing it are usually larger and more productive firms that can also overcome the barriers of trade

Question 36

Do offshoring tend to lead to domestic job loss

Answer 36

No there is no evidence for that as companies tend to increase their domestic employment as they offshore, no such pattern have been seen on macrolevels either