Deck 12: Industrial Structure and Trade in the Global Economy: Businesses Without Borders

Question 1

Long-run average cost is defined as the ratio of a firm-s output to the total cost of producing that output when all factors are variable.

Answer 1

False

Question 2

Which of the following is not a characteristic of a monopolistically competitive industry?

A) easy entry and exit
B) similar but differentiated products
C) positive or negative long-run economic profits
D) small share of total industry output by any individual firm

Answer 2

C

Question 3

The establishment of a foreign subsidiary of a multinational firm that produces a good or service that is similar to the one the firm produces in its home country is known as:

A) vertical investment.
B) horizontal investment.
C) diagonal investment.
D) triangular investment.

Answer 3

B

Question 4

Which of the following is not an example of a barrier to entry?

A) An incumbent firm already using the most efficient production method establishes a first-mover advantage by identifying its product as the industry product.
B) A government requires firms seeking to enter an industry to obtain a license to operate.
C) The industry is characterized by significant diseconomies of scale.
D) Ownership of key inputs used to produce the industry product is concentrated among a few firms.

Question 5

Agglomeration refers to:

A) a consumer-s choice to consume a narrower set of products than the variety available due to international trade.
B) a firm-s production of output at a level beyond its minimum efficient scale.
C) a foreign firm-s sale of a product in a domestic country at a price lower than the domestic market price.
D) the formation of clusters of related industries employing common inputs.

Question 6

External economies refer to:

A) cost advantages arising from locating a firm near important resources, such as skilled workers, capital resources, or required raw materials.
B) cost advantages arising from specializing in producing and trading items in which a nation has a comparative advantage.
C) cost advantages arising from specializing in producing and trading items in which a nation has an absolute advantage.
D) cost advantages arising from expanding production via trade to reach a firm-s minimum efficient scale.

Question 7

In principle, a tendency for firms to congregate in a single nation to reap trade-cost advantages related to key inputs located within that nation, thereby yielding a trade advantage for that nation, could result from:

A) internal economies and attainment of minimum efficient scale.
B) external economies and agglomeration.
C) economies of scale and government-erected entry barriers.
D) diseconomies of scale and a first-mover advantage.

Question 8

An industry concentration ratio is the:

A) sum of market shares of the largest firms in an industry.
B) sum of shares of purchases by the largest consumers of the industry-s products.
C) sum of squared market shares of all firms in the industry.
D) sum of squared market shares of purchases by all consumers of the industry-s products.

Question 9

The relevant market is:

A) defined by the size of the concentration ratio.
B) defined by the size of the Herfindahl-Hirschman index.
C) the true economic market as defined solely by geographic proximity of buyers and sellers.
D) the true economic marketplace taking into account the availability of all products that directly constrain product prices for individual producers.

Question 10

A set of laws aimed at promoting specific industries within a nation is an example of:

A) anti-predatory-pricing laws.
B) anti-price-discrimination laws.
C) antitrust laws.
D) industrial policies.

Question 11

"Gravity" models of international trade emphasize the roles of relative weights of traded merchandise in determining global flows of trade of physical goods.

Question 12

If trading costs over the physical distance separating the agglomerations decline sufficiently, international trade may take place even though the goods are similar, which can help to explain why intra-industry trade may or may not occur, irrespective of traditional economies of scale that are internal to firms.

Question 13

The geographic-based rationale for international trade is that firms seeking to take advantage of external economies and agglomeration naturally exchange products across borders, thereby generating international trade.

Question 14

A firm experiences economies of scale along the downward-sloping portion of its long-run average cost curve.

Question 15

The fact that a the minimum efficient scale for a nation-s industry may be less than the scale it can attain without trade could provide a rationale for international trade.

Question 16

In a monopolistically competitive industry, firms can earn economic profits in the short run that lead to industry exit and zero long-run economic profits.

Question 17

In a monopolistically competitive industry spanning more than one nation, intra-industry trade yields gains to firms in the form of a wider variety of products and lower product prices.

Question 18

Most foreign direct investment occurs through the actions of small firms with operations that spill over to only one or two other countries.

Question 19

Vertical investment involves the establishment of a foreign subsidiary of a multinational firm that produces a good or service that is similar to the one the firm produces in its home country.

Question 20

Factors that prevent entrepreneurs from immediately creating a new firm are called barriers to entry.

Question 21

A government licensing requirement is an example of a barrier to entry.

Question 22

An industry structure in which only a few firms supply the bulk of the industry's output is monopolistic competition.

Question 23

Under international law, dumping is permitted if it entails selling in a domestic market at a price below the foreign firm-s average production cost or at a price lower than the price prevailing in the foreign country.

Question 24

Which of the following two elements are both central to "gravity" models of international trade?

A) Countries- latitudinal and longitudinal locations along the surface of the planet.
B) Countries- sizes and geographic distances separating them.
C) Depths of waterways and heights of surfaces along which international trade flows occur.
D) The relative weights that nations- residents place on physical goods versus intangible services when voting on trade policies.