Exam 9: International Factor Movements and Multinational Enterprises

Multinational corporations sometimes locate manufacturing subsidiaries abroad to avoid tariff barriers which would place their products at a competitive disadvantage in a foreign country.

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.

Multinational enterprises:

Labor migration tends to increase output and decrease wages in the country of immigration while decreasing output and increasing wages in the country of emigration.

American critics of U.S.multinational enterprises contend that they promote

Are there any differences between the theory of multinational enterprises and conventional trade theory?

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

Vertical integration occurs if a parent multinational corporation establishes foreign subsidiaries to produce intermediate goods or inputs that go into the production of a finished good.

Which type of multinational diversification occurs when the parent firm establishes foreign subsidiaries to produce intermediate goods going into the production of finished goods?

If the size of the Canadian market is large enough to permit efficient production in Canada,a U.S.firm would profit by establishing a Canadian manufacturing subsidiary or licensing rights to a Canadian firm to manufacture and sell its product in Canada.

The market power effect of an international joint venture can lead to welfare losses for the domestic economy unless offset by cost reductions.Which type of cost reduction would not lead to offsetting welfare gains for the overall economy?

Joint ventures lead to national welfare gains if the newly established business yields productivity increases that would have been unavailable if each parent performed the same function separately.

Trade analysis involving multinational enterprises differs from our conventional trade analysis in that multinational enterprise analysis emphasizes:

The source (home)location of most of the world's leading multinational enterprises is:

Suppose that a steel manufacturer headquartered in Japan sets up a subsidiary in Canada to produce steel.This practice is referred to as:

Which business device involves the creation of a new business by two or more companies,often for a limited period of time?

Figure 9.1.International Joint Venture -Consider Figure 9.1.Assume Venture Company's formation yields new cost reductions,indicated by MC₁=AC₁,which result from technological advances.Realizing that Venture Company results in a deadweight loss of consumer surplus,the net effect of Venture Company's formation on the welfare of the domestic economy is:

-Consider Figure 9.3.At labor market equilibrium,the payment to Mexican capital owners equals:

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

Figure 9.1.International Joint Venture -Consider Figure 9.1.Suppose that Sony Company and American Company jointly form a new firm,Venture Company,whose ball bearings replace the output sold by the parents in the domestic market.Assuming that Venture Company operates as a monopoly and that its costs equal MC₀=AC₀,the firm's price,output,and total profit would respectively equal: