Exam 9: International Factor Movements and Multinational Enterprises

Firms undertake multinational operations in order to:

Joint ventures may lead to

A joint venture along two large competing companies tends to yield a market-power effect, which results in a reduction in consumer surplus, that is not offset by a corresponding gain to producers.

Developing countries, such as Mexico and India, often close their borders to foreign companies unless they are willing to take on partner companies in developing countries.

Figure 9.2 represents the U.S. labor market. Assume that labor and capital are the only factors of production. Also assume the initial supply schedule of labor is denoted by S₀ and consists entirely of native U.S. workers. The demand schedule of labor is denoted by D₀. Figure 9.2. U.S. Labor Market -Consider Figure 9.2. Policies that permit Mexican workers to freely migrate to the United States would likely be resisted by:

Mexico's ____ refer to an assemblage of U.S.-owned companies that use U.S.-owned parts and Mexican assembly to manufacture goods that are exported to the United States.

Figure 9.3 Figure 9.3 represents the Mexican labor market. Assume that labor and capital are the only factors of production. Also assume the initial supply schedule of labor is denoted by S₀ and consists entirely of native Mexican workers. The demand schedule of labor is denoted by D_Mexico. -Consider Figure 9.3. At labor market equilibrium, the payment to Mexican capital owners equals:

Direct foreign investment has taken all of the following forms $\underline { \text { except } }$

If a joint venture among competing firms is able to cut costs by extracting wage concessions from domestic workers, national welfare increases.

All of the following are potential advantages of an international joint venture $\underline { \text { except } }$

The theory of multinational enterprise is totally inconsistent with the principle of comparative advantage.

Which term best describes the New United Motor Manufacturing Co.?

Both economic theory and empirical studies support the notion that foreign direct investment is conducted in anticipation of future profits.

During the 1980s and 1990s, Japanese auto firms established manufacturing facilities in the United States known as "transplants."

Multinational corporations often locate manufacturing operations abroad in order to take advantage of foreign resource endowments or wage scales.

A joint venture leads to increases in national welfare if its cost-reduction effect is due to productivity gains and if it more than offsets the market-power effect.

Maquiladoras refer to an assemblage of U.S.-owned companies that combine Mexican parts and U.S. assembly to manufacture goods that are exported to Mexico.

Suppose General Motors charges its Mexican subsidiary $1 million for auto assembly equipment that could be purchased on the open market for $800,000. This practice is $\underline { \text { best } }$ referred to as:

Critics of multinational corporations maintain that they often abandon domestic workers in order to take advantage of lower wage scales abroad.

Figure 9.1 illustrates the market conditions facing Sony Company and American Company initially operating as competitors in the domestic ball bearing market. Each firm realizes constant long-run costs, MC₀=AC₀. Figure 9.1. International Joint Venture -Consider Figure 9.1. Compared to the market equilibrium position achieved by Sony Company and American Company as competitors, Venture Company as a monopoly leads to a deadweight loss of consumer surplus of: