Chapter 7&8

Question 1

Why do internal economies of scale lead to imperfectly competitive​ industries?

a) Patent laws prevent firms from entering the market.
b) There are barriers to entry due to large fixed costs.
c) Large firms have cost advantages over small firms.
d) This is an observation based on measurable data.

Answer 1

c)Large firms have cost advantages over small firms.

Question 2

How do economies of scale give rise to international​ trade?

a) International trade occurs because of​ multi-national corporations.
b) International trade occurs because economies of scale transfer knowledge across countries.
c) They enhance resource differences between countries.
d) International trade occurs because it increases the market size.

Answer 2

d)International trade occurs because it increases the market size.

Question 3

For each of the following​ examples, explain whether this is a case of external or internal economies of​ scale:

a) A number of firms doing contract research for the drug industry are concentrated in southeastern South Carolina.
b) All Hondas produced in the United States come from plants in​ Ohio, Indiana, or Alabama.
c) All airframes for​ Airbus, Europe’s only producer of large​ aircraft, are assembled in​ Toulouse, France.
d) ​Cranbury, New​ Jersey, is the artificial flavor capital of the United States.

Answer 3

a) external
b) internal
c) internal
d) external

Question 4

External economies of scale occur when average costs

a) fall as the industry grows larger but rise as the representative firm grows larger.
b) rise as the industry grows larger.
c) fall as the representative firm and industry grows larger.
d) remain constant

Answer 4

a) fall as the industry grows larger but rise as the representative firm grows larger.

Question 5

Internal economies of scale occur when the average costs

a) rise for a given firm as the industry grows larger.
b) fall for a given firm as the industry grows larger.
c) fall as the representative firm grows larger.
d) rise as the representative firm grows larger.

Answer 5

c)fall as the representative firm grows larger.

Question 6

External economies of scale

a) External economies of scale
b) tend to result in large profits for each firm and an industry with relatively few firms.
c) are more likely to be associated with a perfectly competitive industry.
d) lead to the creation of a single large monopoly.

Answer 6

c)are more likely to be associated with a perfectly competitive industry.

Question 7

Internal economies of scale

a) may be associated with an imperfectly competitive industry.
b) can never form the basis for international trade.
c) may be associated with a perfectly competitive industry.
d) are associated only with​ high-tech or complex products such as robotics.

Answer 7

a) may be associated with an imperfectly competitive industry.

Question 8

It is often argued that the existence of increasing returns is a source of conflict between​ countries, since each country is better off if it can increase its production in those industries characterized by economies of scale.
Evaluate this view in terms of both the monopolistic competition and the external economy models.
By concentrating the production of each good with economies of scale in one country rather than spreading the production over several​ countries, the world economy will use the same amount of labor to produce ______ output.

In the _____ model, such a concentration of labor benefits the host​ country, which can also capture some monopoly​ rents, while it may hurt the rest of the world which could then face higher prices on its consumption goods.

In the ______ case, such monopolistic pricing behavior is less likely since imperfectly competitive markets are less likely.  

Answer 8

more ; monopolistic competition ; external economies

Question 9

It is fairly common for an industrial cluster to break up and for production to move to locations with lower wages when the technology of the industry is no longer rapidly improvingwhen it is no longer essential to have the absolutely most modern​ machinery, when the need for highly skilled workers has​ declined, and when being at the cutting edge of innovation conveys only a small advantage.
Explain this tendency of industrial clusters to break up in terms of the theory of external economies.
As technological change and innovation slows in an​ industry,
a) specialized suppliers and labor market​ pooling, which are the reasons clusters are more efficient than individual​ firms, become less​ important; thus, firms will seek out low cost production locations and the cluster will breakdown.
b) low wage countries will be able to reverse engineer products and produce them at a lower​ cost; thus, the cluster will lose its cost advantage and breakdown.
c) specialized​ suppliers, labor market​ pooling, and knowledge​ spillovers, which are the reasons clusters are more efficient than individual​ firms, become less​ important; thus, firms will seek out low cost production locations and the cluster will breakdown.
d) knowledge spillovers will enable production to become efficient in low wage​ countries; thus, firms will seek out low cost production locations and the cluster will breakdown.

Answer 9

c) specialized​ suppliers, labor market​ pooling, and knowledge​ spillovers, which are the reasons clusters are more efficient than individual​ firms, become less​ important; thus, firms will seek out low cost production locations and the cluster will breakdown.

Question 10

Where there are economies of​ scale, the scale of production possible in a country is constrained by

a) the size of that country.
b) the size of the domestic market.
c) the aggregate size of all trading partner countries.
d) the combined size of the domestic and foreign market.

Answer 10

d) the combined size of the domestic and foreign market.

Question 11

Where there are economies of​ scale, an increase in the size of the market will

a) lead to more firms producing and selling in that market and raise the price per unit.
b) lead to fewer firms producing and selling in that market and raise the price per unit.
c) decrease the number of firms and leave the price per unit unchanged.
d) lead to more firms producing and selling in that market and lower the price per unit.

Answer 11

d) lead to more firms producing and selling in that market and lower the price per unit.

Question 12

What is a​ “forward-falling supply​ curve”?

a) The supply curve of a monopolistically competitive industry with internal economies.
b) The supply curve of a perfectly competitive industry with internal economies.
c) A supply curve describing reciprocal dumping.
d) The supply curve of a monopolist engaged in dumping.
e) The supply curve of a perfectly competitive industry with external economies.

Answer 12

e) The supply curve of a perfectly competitive industry with external economies.

Question 13

British economist Alfred Marshall argued that there are three main​ reasons, which are still valid​ today, as to why a cluster of firms may be more efficient than an individual firm in isolation. What are those three​ reasons?
The three reasons why a cluster of firms may be more efficient than an individual firm in isolation​ are:
a) the ability of a cluster to support specialized​ suppliers; the way that a geographically concentrated industry promotes generalized labor market​ skills; and the way that a geographically concentrated industry helps foster knowledge spillovers.
b) the ability of a cluster to support ​non-specialized ​suppliers; the way that a geographically concentrated industry allows labor market​ pooling; and the way that a geographically concentrated industry helps foster knowledge spillovers.
c) the ability of a cluster to support specialized​ suppliers; the way that a geographically concentrated industry allows labor market​ pooling; and the way that a geographically concentrated industry helps firms partner to acquire technology from competitors in other locations.
d) the ability of a cluster to support specialized​ suppliers; the way that a geographically concentrated industry allows labor market​ pooling; and the way that a geographically concentrated industry helps foster knowledge spillovers.

Answer 13

d) the ability of a cluster to support specialized​ suppliers; the way that a geographically concentrated industry allows labor market​ pooling; and the way that a geographically concentrated industry helps foster knowledge spillovers.

Question 14

What is a localized industrial​ cluster?
A localized industrial cluster is a concentration of
a) many firms in one geographic area that provide specialized equipment or support services to other firms located in other geographic areas.
b) many firms in different industries located in one geographic area to access specialized equipment or support services provided by other firms located in other geographic areas.
c) many interconnected firms in one geographic area that provides a market large enough to support a wide range of specialized suppliers.
d) many firms in different industries located in one geographic area to take advantage of tax incentives offered by government.

Answer 14

c) many interconnected firms in one geographic area that provides a market large enough to support a wide range of specialized suppliers.

Question 15

What advantages can a localized industrial cluster​ provide?
By bringing many firms together in one geographic​ location, a localized industrial cluster provides a market large enough to support
a) a network of suppliers that can specialize in what they do​ best, contract out other aspects of their​ businesses, and offer cheaper and more easily accessible products to other firms in other geographic areas.
b) a diverse group of firms each of which provides for​ itself, but which can take advantage of lower transportation and utility costs due to the use of a common infrastructure.
c) a network of suppliers that can specialize in what they do​ best, contract out other aspects of their​ businesses, and offer cheaper and more easily accessible products to other firms in the same area.
d) a large number of​ self-contained firms that are large enough in number to be able to obtain property tax reductions and other concessions from the local government.

Answer 15

c) a network of suppliers that can specialize in what they do​ best, contract out other aspects of their​ businesses, and offer cheaper and more easily accessible products to other firms in the same area.

Question 16

It is argued that a localized industrial cluster of firms can enjoy external economies by creating a pooled market for workers with highly specialized skills. In what ways can such a pooled labor market be advantageous and who could​ benefit?
Labor market pooling can
a) increase the likelihood of unionization leading to higher wages and benefits for workers at the expense of producers.
b) reduce the likelihood of unionization by workers leading to lower wages and benefits to the benefit of producers.
c) reduce the likelihood of labor shortages for producers and unemployment for workers.
d) increase the likelihood of job retention and improved productivity among workers to the benefit of producers.

Answer 16

c) reduce the likelihood of labor shortages for producers and unemployment for workers.

Question 17

In​ today’s economy, knowledge is at least as important an input as are factors of production like​ labor, capital, and raw materials. This is especially true in highly innovative​ industries, where being even a few months behind the cutting edge in production techniques or product design can put a company at a major disadvantage. Do localized industrial clusters have an advantage over individual firms in obtaining specialized​ knowledge? Why?

a) ​No, localized industrial clusters do not have an advantage in obtaining specialized​ knowledge, because individual firms are equally capable of acquiring technology through their own research and development efforts or by reverse engineering the products of competitors.
b) Yes, localized industrial clusters do have an advantage in obtaining specialized​ knowledge, because they help foster knowledge spillovers- the informal exchange of information and ideas that takes place at a personal level and seems most effective when employees of different companies in a fairly small area mix socially and talk freely about technical issues.
c) ​Yes, localized industrial clusters do have an advantage in obtaining specialized​ knowledge, because the high concentration of firms in a single geographic area attracts more headhunters who find employees with the knowledge firms in those areas need to succeed.
d) ​No, localized industrial clusters do not have an advantage in obtaining specialized​ knowledge, because like firms concentrated in one geographic​ location, individual firms also put on training sessions and encourage their employees to participate in conferences in different regions of the country.

Answer 17

b) Yes, localized industrial clusters do have an advantage in obtaining specialized​ knowledge, because they help foster knowledge spillovers- the informal exchange of information and ideas that takes place at a personal level and seems most effective when employees of different companies in a fairly small area mix socially and talk freely about technical issues.

Question 18

Evaluate the relative importance of economies of scale and comparative advantage in causing the following. ​ Specifically, for each​ outcome, state whether it was primarily the result of comparative advantage or economies of scale.

a) Most of the​ world’s aluminum is smelted in Norway or Canada.
b) Half of the​ world’s large jet aircraft are assembled in Seattle.
c) Most semiconductors are manufactured in either the United States or Japan.
d) Most Scotch whiskey comes from Scotland.
e) Much of the​ world’s best wine comes from France.

Answer 18

a) economies of scale
b) economies of scale
c) economies of scale
d) comparative advantage
e) comparative advantage

Question 19

Which of the following is the most important determinant of the location of tradable industries within a​ country?

a) External economies.
b) natural resource abundance
c) labor and capital availability
d) political influence

Answer 19

a) External economies

Question 20

What factor primarily explains how a particular region develops the external economies that support an​ industry?

a) shrewd political leadership
b) artful regional planning
c) presence of internal economies
d) accidents of history

Answer 20

d) accidents of history

Question 21

In perfect​ competition, firms set price equal to marginal cost. Why​ isn’t this possible when there are internal economies of​ scale?
Evaluate the following​ statement: If firms set their price equal to marginal​ cost, they would be operating at a loss.
a) True. Given internal economies of​ scale, average cost is always greater than marginal cost.

b) False. Given internal economies of​ scale, it is impossible to set price equal to marginal cost because it is zero.

Answer 21

a) True. Given internal economies of​ scale, average cost is always greater than marginal cost.

Question 22

The figure to the right shows​ Home’s monopolistically competitive software market. Suppose that initially the market contains 3 firms. In this case the software market can be expected to experience  

a) decrease in number of firms
b) increase in price
c) increase in number of firms
d) decrease in average cost

Answer 22

c) increase in number of firms

Question 23

A firm that exists as a monopolist in a given industry

a) can sell as much as possible for any price it sets in the market.
b) will never sell a product where the price elasticity of demand is inelastic.
c) can only sell additional quantities when it raises the price on each unit.
d) is a​ price-taker with price being determined by consumer demand.

Answer 23

b) will never sell a product where the price elasticity of demand is inelastic.

Question 24

Modeling trade industries composed of oligopolies is problematic because

a) it is difficult to develop a model of an oligopoly in the real world.
b) there are many competing models of oligopoly behavior.
c) there are no​ empirically-valid models of oligopoly behavior.
d) collusion and strategic behavior make usable data rare.

Answer 24

b) there are many competing models of oligopoly behavior.

Question 25

In the figure to the right the curve labeled PP​ shows, for a​ "typical" monopolistically competitive​ market, the relationship between product price and the number of firms. This curve is negatively sloped because a) product quality is​ "watered down" when there are many​ firms, thus necessitating a lower price. b) more firms give rise to more intense​ competition, and hence a lower price. c) a lower price attracts​ consumers, enabling more firms to enter the market. d) more firms can overpower and exploit​ workers, yielding low wages and consequently low prices.

Answer 25

b) more firms give rise to more intense​ competition, and hence a lower price.

Question 26

In the figure to the right the curve labeled CC​ shows, for a​ "typical" monopolistically competitive​ market, the relationship between average cost and the number of firms. This curve is positively sloped because a) product quality is enhanced as the number of firms​ increases, causing average cost to rise. b) the more firms there​ are, the less each firm produces. c) the marginal cost exceeds the average cost. d) resource prices are​ "bid up" as the number of firms increases.

Answer 26

b) the more firms there​ are, the less each firm produces.

Question 27

Suppose the two countries we considered in the numerical example in the text were to integrate their automobile market with a third country with an annual market for​ 3,750,000 automobiles. Find the number of​ firms, the output per​ firm, and the price per automobile in the new integrated market after trade.  You are given the following​ information: The total sales​ (S) in the industry after integration are​ 6,250,000 automobiles per year. The marginal revenue curve facing any one producer is described by the equation MR= P - 30,000xQ/S Each producer has the following​ costs: fixed costs​ (F) of​ $750,000,000 and a constant marginal cost​ (c) of​ $5,000. In equilibrium, the number of firms will be ______. The equilibrium price will be $_______ The equilibrium output per firm is ______

Answer 27

15 ; $7000 ; 416,667

Question 28

Suppose that fixed costs for a firm in the automobile industry​ (start-up costs of​ factories, capital​ equipment, and so​ on) are​ $5 billion and that variable costs are equal to​ $17,000 per finished automobile. Because more firms increase competition in the​ market, the market price falls as more firms enter an automobile​ market, or specifically ​, where n represents the number of firms in a market. Assume that the initial size of the U.S. and the European automobile markets are 300 million and 533 million​ people, respectively. a. Calculate the equilibrium number of firms in the U.S. and European automobile markets without trade. In US, there will be _____ firms. In Europe, there will be ____ firms. b. What is the equilibrium price of automobiles in the United States and Europe if the automobile industry is closed to foreign​ trade? In the US, $______. In Europe ,$_____. c. Now suppose that the United States decides on free trade in automobiles with Europe. The trade agreement with the Europeans adds 533 million consumers to the automobile​ market, in addition to the 300 million in the United States. How many automobile firms will there be in the United States and in Europe​ combined? What will be the new equilibrium price of​ automobiles? The combined number of firms will be _____. The equilibrium price will be $______. d) Prices fall in part​ (c) relative to part​ (b) because there are _____

Answer 28

a) 3 , 4 b) $17050 ; 17037.50 c) 5 firms ; $17030 d) more ; more variety

Question 29

The figure to the right shows​ Home's monopolistically competitive market for computers​ which, initially, has 9 firms. According to the relationship shown in the​ graph, product price​ (PP) and market size are ______ related. The inverse relationship between market size and product price occurs​ because: a) a bigger market requires more​ firms, and more firms result in lower product quality and hence lower prices. b) an increase in market size allows each firm to produce​ more, causing average costs to rise. Because their costs are​ higher, firms are forced to lower prices to avoid losing customers. c) an increase in market size allows each firm to produce more and thus have a lower average cost. The resulting economic profit entices new firms to​ enter, putting downward pressure on price. d) larger markets induce governments to intervene on behalf of​ consumers, bringing about price reductions.

Answer 29

inversely ; c) an increase in market size allows each firm to produce more and thus have a lower average cost. The resulting economic profit entices new firms to​ enter, putting downward pressure on price.

Question 30

A monopolist engaged in international trade will a) equate marginal costs with marginal revenues in all markets. b) equate marginal costs with foreign marginal revenues. c) equate regional to local costs. d) equate marginal costs with the​ market-determined price.

Answer 30

a) equate marginal costs with marginal revenues in all markets.

Question 31

A product is produced in a monopolistically competitive industry with economies of scale. If this industry exists in two​ countries, and these two countries engage in trade one with the​ other, then we would expect a) the country with a relative abundance of factor inputs consistent with the factor intensity of the product will export this product. b) that this trade will lead to greater product differentiation. c) neither country will export this product since there is no comparative advantage. d) the country with lower production costs will export the product.

Answer 31

b) that this trade will lead to greater product differentiation.

Question 32

The simultaneous export and import of textiles by India is an example of a) increasing returns to scale. b) intraindustry trade c) imperfect competition d) interindustry trade

Answer 32

b) intraindustry trade

Question 33

Increased competition from trade a) tends to hurt the worst-performing firms in an industry the most b) takes away sales opportunities in new markets for surviving firms c) tends to force the best-performing firms in an industry to exit d) allows the worst-performing firms in an industry to expand the most

Answer 33

a) tends to hurt the worst-performing firms in an industry the most

Question 34

Compared to a monopolistically competitive firm with a higher marginal​ cost, a firm with a lower marginal cost will a) set the same price because the firm is a price taker. b) set a higher price c) earn higher profits d) produce less output

Answer 34

c) earn higher profits

Question 35

What is​ "dumping?" a) Includes any violation of trade laws. b) An example of one type of price discrimination. c) export subsidy d) Competition between two firms located in two different countries.

Answer 35

b)An example of one type of price discrimination.

Question 36

How can dumping increase profits for a​ monopolist? a) It increases revenues more than costs if export sales are more​ price-responsive than domestic sales. b) It creates international trade through reciprocal dumping. c) It cannot be​ profitable, because the monopoly is lowering its price. d) It allows a monopoly to advertise its brand at lower cost to a larger market.

Answer 36

a) It increases revenues more than costs if export sales are more​ price-responsive than domestic sales.

Question 37

The creation of an integrated market as a result of international trade results in a) a wider range of choices for consumers. b) lower prices c) more firms, each operating at a larger scale d) all the above

Answer 37

d) all the above

Question 38

Which of the following pairs of conditions must be met for dumping to​ occur? a) The industry must be imperfectly competitive and markets must be segmented. b) The industry must be imperfectly competitive and markets must have identical demand elasticities. c) The industry must be perfectly competitive and markets must be segmented. d) The industry must be imperfectly competitive and markets must be​ non-segmented.

Answer 38

a) The industry must be imperfectly competitive and markets must be segmented.

Question 39

Which of the following are direct foreign​ investments, and which are​ not? a) A French company merges with an American​ company; stockholders in the U.S. company exchange their stock for shares in the French firm.   b) The same Saudi businessman buys a New York apartment building.c c) A Saudi businessman buys​ $10 million of IBM stock. d) An Italian firm builds a plant in Russia and manages the plant as a contractor to the Russian government.

Answer 39

a) yes b) yes c) no d) no

Question 40

For the​ following, specify whether the foreign direct investment is horizontal or​ vertical; in​ addition, describe whether that investment represents an FDI inflow or outflow from the countries that are mentioned. a) Nestle builds a new production factory in Bulgaria to produce the chocolate that it uses to produce its Kit Kat bars.

Answer 40

a) vertical ; Switzerland ; Bulgaria

Question 41

If there are internal economies of​ scale, why would it ever make sense for a firm to produce the same good in more than one production​ facility? Which of the following statements regarding the question above is​ true? a) This production dilemma is an example of the​ proximity-concentration trade-off. b) The disadvantage of producing in only one location is that economies of scale are minimized. c) The number of production locations is limited by the net effect of the gains from splitting production and the losses from losing out on economies of scale. d)If trade costs are low​ enough, it may be more efficient to locate production in multiple locations.

Answer 41

a) This production dilemma is an example of the​ proximity-concentration trade-off.

Question 42

Most firms in the apparel and footwear industries choose to outsource production to countries where labor is abundant​ (primarily, Southeast Asia and the ​Caribbean)but those firms do not integrate with their suppliers there. On the other​ hand, firms in many​ capital-intensive industries choose to integrate with their suppliers. What could be some differences between the​ labor-intensive apparel and footwear industries on the one hand and​ capital-intensive industries on the other hand that would explain these​ choices? A multinational may prefer to a) use a foreign affiliate if it wants to benefit from economies of scale as a result of the affiliate performing narrow parts of the production process for many different parent​ firms, which is more likely to be the case in​ capital-intensive industries. b) use a foreign affiliate if it has a proprietary technology that it is concerned about​ losing, which is more likely to be the case in​ capital-intensive industries. c) outsource to an independent foreign firm if it is concerned about weak property rights in foreign​ countries, which is more likely to be the case in​ labor-intensive industries. d) outsource to an independent foreign firm if it doubts the ability of other firms to produce as efficiently as it​ could, which is more likely to be the case in​ labor-intensive industries.

Answer 42

b) use a foreign affiliate if it has a proprietary technology that it is concerned about​ losing, which is more likely to be the case in​ capital-intensive industries.

Question 43

Most firms in the apparel and footwear industries choose to outsource production to countries where labor is abundant​ (primarily, Southeast Asia and the ​Caribbean)but those firms do not integrate with their suppliers there. On the other​ hand, firms in many​ capital-intensive industries choose to integrate with their suppliers. What would these choices imply for the extent of ​intra-firm trade across​ industries? That​ is, in what industries would a greater proportion of trade occur within​ firms? ​Intra-firm trade will be a) higher in industries when there is a large level of exports but virtually no imports b) higher in industries that rely primarily on outsourcing c) lower in capital- intensive countries d) higher in industries with a high degree of vertical FDI

Answer 43

d) higher in industries with a high degree of vertical FDI

Question 44

When a US firm builds a new production facility abroad, that investment is considered a) US foreign direct investment inflows b) brownfield foreign direct investment c) Greenfield foreign direct investment d) cross-border mergers and acquisitions

Answer 44

c) Greenfield foreign direct investment

Question 45

Offshoring a) represents the relocation of parts of the production chain abroad and groups together both foreign outsourcing and vertical FDI b) occurs when a firm sets an export price (net of trade costs) that is lower than its domestic price c) occurs when a parent contracts with an independent firm to perform specific parts of the production process in the foreign location with the best cost advantage d) is a substitute for vertical FDI

Answer 45

a) represents the relocation of parts of the production chain abroad and groups together both foreign outsourcing and vertical FDI

Question 46

Which of the following is true regarding the expansion in multinational production and​ outsourcing? a) Some of the most visible effects of multinationals and outsourcing occur in the long​ run, as some firms expand employment while others reduce employment in response to increased globalization. b) Policies that impede​ firms' abilities to relocate production accelerate the accumulation of​ long-run economy-wide gains. c) The expansion is likely to induce income distribution effects that leave most people worse off. d) Relocating production to take advantage of cost differences leads to overall gains from trade.

Answer 46

d) Relocating production to take advantage of cost differences leads to overall gains from trade.

Question 47

A firm will tend to become a multinational corporation if a) the​ per-unit cost of exporting is less than the average fixed cost of setting up an additional production facility. b) the​ per-unit cost of exporting exceeds the average fixed cost of setting up an additional production facility. c) the​ per-unit cost of exporting is less than the average variable cost of setting up an additional production facility. d) the​ per-unit cost of exporting exceeds the average variable cost of setting up an additional production facility.

Answer 47

b) the​ per-unit cost of exporting exceeds the average fixed cost of setting up an additional production facility.

Question 48

To maximize its​ profits, a​ firm's choice between whether to export its product or engage in foreign direct investment involves a​ trade-off between a) the​ per-unit cost of exporting and the average fixed cost of setting up an additional production facility. b) the​ per-unit cost of exporting and the average variable cost of setting up an additional production facility. c) the total cost of exporting and the average fixed cost of setting up an additional production facility. d) the total cost of exporting and the average variable cost of setting up an additional production facility.

Answer 48

a) the​ per-unit cost of exporting and the average fixed cost of setting up an additional production facility.

Question 49

The scale cutoff for foreign direct investment ​(FDI) - the incentive to engage in horizontal FDI - falls as a) the​ per-unit cost of exporting and the average fixed cost of setting up an additional production facility both rise. b) the​ per-unit cost of exporting falls and the average fixed cost of setting up an additional production facility rises. c) the​ per-unit cost of exporting rises and the average fixed cost of setting up an additional production facility falls. d) the​ per-unit cost of exporting and the average fixed cost of setting up an additional production facility both fall.

Answer 49

c) the​ per-unit cost of exporting rises and the average fixed cost of setting up an additional production facility falls.

Question 50

A​ firm's decision to engage in vertical foreign direct investment to break up its production chain and move parts of that chain to a foreign affiliate involves a​ trade-off between a) ​per-unit trade costs associated with exporting and average fixed costs of operating the foreign affiliate. b) ​per-unit production costs for the parts of the production chain that are being moved and​ per-unit trade costs associated with exporting. c) ​per-unit production costs for the parts of the production chain that are being moved and average fixed costs of operating the foreign affiliate. d) ​per-unit production costs for the parts of the production chain that are being moved and average variable costs of operating the foreign affiliate.

Answer 50

c) ​per-unit production costs for the parts of the production chain that are being moved and average fixed costs of operating the foreign affiliate.