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Assignment 8 (Chapter 9)

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1. The source (home) location of most of the world's leading multinational enterprises is:
  1. North America and Europe
  2. North America and Asia
  3. Europe and South America
  4. Europe and Asia
2. Which type of multinational diversification occurs when the parent firm establishes foreign subsidiaries to produce intermediate goods going into the production of finished goods?
  1. Forward vertical integration
  2. Backward vertical integration
  3. Forward horizontal integration
  4. Backward horizontal integration
3. During the 1970s, American oil companies acquired nonenergy companies (e.g., copper, auto components) in response to anticipated decreases in investment opportunities in oil. This type of diversification is referred to as:
  1. Horizontal integration
  2. Conglomerate integration
  3. Forward vertical integration
  4. Backward vertical integration
4. Which of the following best refers to the outright construction or purchase abroad of productive facilities, such as manufacturing plants, by domestic residents?
  1. Direct investment
  2. Portfolio investment
  3. Short-term capital investment
  4. Long-term capital investment
5. Most U.S. direct investment abroad occurs in:
  1. Communications
  2. Petroleum
  3. Finance and insurance
  4. Manufacturing
6. Most foreign direct investment in the United States occurs in:
  1. Public utilities
  2. Communications
  3. Manufacturing
  4. Mining and smelting
7. Which of the following is not a significant motive for the formation of multinational enterprises?
  1. Avoiding tariffs by obtaining foreign manufacturing facilities
  2. Obtaining the benefits from overseas comparative advantages
  3. The acquisition of natural resource supply sources
  4. Subsidies granted by the home (source) government to overseas corporations
8. 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 best referred to as:
  1. International dumping
  2. Cost-plus pricing
  3. Transfer pricing
  4. Technological transfer
9. Direct foreign investment has taken all of the following forms except:
  1. Investors buying bonds of an existing firm overseas
  2. The creation of a wholly owned business enterprise overseas
  3. The takeover of an existing company overseas
  4. The construction of a manufacturing plant overseas
10. Both Coca-Cola Co. and Pepsi-Cola Co. are multinational firms in that their soft drinks are bottled throughout the world. This practice illustrates:
  1. Backward vertical integration
  2. Forward vertical integration
  3. Horizontal integration
  4. Conglomerate integration
11. All of the following are potential advantages of an international joint venture except:
  1. Sharing research and development costs among corporations
  2. Forestalling protectionism against imports
  3. Establishing work rules promoting higher labor productivity
  4. Operating at diseconomy-of-scale output levels
12. Multinational enterprises:
  1. Increase the transfer of technology between nations
  2. Make it harder for nations to foster activities of comparative advantage
  3. Always enjoy political harmony in nations where their subsidiaries operate
  4. Require governmental subsidies in order to conduct worldwide operations
13. Multinational enterprises face problems since they:
  1. Cannot benefit from the advantages of comparative advantage
  2. May raise political problems in countries where their subsidiaries operate
  3. Can invest only at home, but not overseas
  4. Can invest only overseas, but not at home
14. American labor unions have recently maintained that U.S. multinational enterprises have been:
  1. Exporting American jobs by investing overseas
  2. Exporting American jobs by keeping investment in the United States
  3. Importing cheap foreign workers by shifting U.S. investment overseas
  4. Importing cheap foreign workers by keeping U.S. investment at home
15. Which of the following refers to the price charged for products sold to a subsidiary of a multinational enterprise by another subsidiary in another nation?
  1. Transfer pricing
  2. International dumping
  3. Price discrimination
  4. Full-cost pricing
16. Which business device involves the creation of a new business by two or more companies, often for a limited period of time?
  1. Multinational enterprise
  2. International joint venture
  3. Horizontal merger
  4. Vertical merger
17. International joint ventures can lead to welfare losses when the newly established firm:
  1. Adds to the preexistent productive capacity
  2. Enters markets neither parent could have entered individually
  3. Yields cost reductions unavailable to parent firms
  4. Gives rise to increased amounts of market power
18. 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. Answer the question(s) on the basis of this information.

Figure 9.1. International Joint Venture

Figure 9.1

Consider Figure 9.1. With Sony Company and American Company behaving as competitors, the equilibrium price and output respectively equal:
  1. $4 and 2 units
  2. $4 and 4 units
  3. $6 and 2 units
  4. $6 and 4 units
19. 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. Answer the question(s) on the basis of this information.

Figure 9.1. International Joint Venture

Figure 9.1

Consider Figure 9.1. Compared to the market equilibrium position achieved by Sony Company and American Company as competitors, Venture Company, a joint venture that acts as a monopoly, leads to a deadweight loss of consumer surplus of:
  1. $2
  2. $4
  3. $6
  4. $8
20. 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. Answer the question(s) on the basis of this information.

Figure 9.1. International Joint Venture

Figure 9.1

Consider Figure 9.1. Assume Venture Company’s formation yields new cost reductions, indicated by MC1 = AC1, which result from technological advances. Comparing the case of two competing firms with the case of a joint venture, the net effect of Venture Company’s formation on the welfare of the domestic economy is:
  1. No change
  2. Gain of $5.5
  3. Gain of $4.0
  4. Loss of $2.5
21. 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. On the basis of this information, answer the question(s).

Figure 9.2. U.S. Labor Market

Figure 9.2

Consider Figure 9.2. If Mexican migration to the United States results in the labor force increasing to 3 workers, denoted by schedule S1, the:
  1. Wage rate for native U.S. workers decreases and the payments to U.S. capital owners increases
  2. Wage rate for native U.S. workers decreases and the payments to U.S. capital owners decreases
  3. Wage rate for native U.S. workers increases and the payments to U.S. capital owners increases
  4. Wage rate for native U.S. workers increases and the payments to U.S. capital owners decreases
22. 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. On the basis of this information, answer the question(s).

Figure 9.2. U.S. Labor Market

Figure 9.2

Consider Figure 9.2. Policies that permit Mexican workers to freely migrate to the United States would likely be resisted by:
  1. U.S. capital owners
  2. Native U.S. workers
  3. U.S. capital owners and native U.S. workers
  4. Neither U.S. capital owners nor native U.S. workers
23. ____ refers to highly educated and skilled people who migrate from poor developing countries to wealthy industrial countries.
  1. Direct investment
  2. Portfolio investment
  3. Transfer pricing
  4. Brain drain
24. Critics of U.S. trade and immigration policy maintain that:
  1. It has depressed wages for many Americans
  2. It has increased the supply of less educated workers in the United States
  3. It has an adverse impact on the employment opportunities of less-skilled, American workers
  4. All of the above
25. American critics of U.S. multinational enterprises contend that they promote:
  1. Runaway jobs
  2. Technology transfers abroad
  3. Tax evasion
  4. All of the above
 
Copyright 2008, by the Contributing Authors. Cite/attribute Resource. admin. (2006, January 05). Assignment 8 (Chapter 9). Retrieved October 12, 2008, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/Economics/International_Economics/Assignment8.htm. This work is licensed under a Creative Commons License. Creative Commons License
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