Firm Responses to Trade, Trade Cost & Export Decisions, FDI

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

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) steeper; reduce; increase

• B) flatter; increase; reduce

• C) flatter; reduce; increase

• D) steeper; increase; reduce

• E) horizontal; reduce; reduce

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; increase; increase; reduce

• B) increase; increase; reduce; reduce

• C) increase; reduce; increase; reduce

• D) reduce; increase; reduce; increase

• E) reduce; reduce; increase; increase

In the model of monopolistic competition, trade costs between countries cause

• A) all firms that can earn a profit on domestic sales to export their goods at higher prices

• 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) marginal costs of exported goods to exceed the marginal costs of goods sold domestically

• E) countries to negotiate the elimination of trade costs by mutual subsidization of trade

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) identical; different; different

• B) different; different; different

• C) different; different; identical

• D) identical; different; identical

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

When a multinational affiliate replicates production in a foreign country it is called ________ foreign direct investment.

• A) bisectional

• B) vertical

• C) transitional

• D) horizontal

• E) direct

Foreign outsourcing is

• A) the transfer of operations to foreign contractors

• B) an example of internalization

• C) an example of foreign direct investment

• D) currently illegal in the U.S

• E) the substitution of immigration for foreign direct investment

A firm is more likely to engage in horizontal foreign direct investment if

• A) trade costs are high and there are external economies of scale

• B) trade costs are low and there are internal economies of scale

• C) trade costs are high and there are internal economies of scale

• D) trade costs are low and there are external economies of scale

• E) trade costs are low and firms experience constant returns to scale in production

A firm's foreign direct investment. decisions are, in the case of horizontal FDI, strongly influenced by ________ and, in the case of vertical FDI, strongly influenced by ________.

• A) production costs; trade costs

• B) materials costs; labor costs

• C) production costs; materials costs

• D) trade costs; production costs

• E) labor costs; trade costs