Describe the two sources of economies of scale and how these economies of scale lead to intraindustry trade
What will be an ideal response?
Internal economies of scale come from decreasing average costs as production increases. The source of the decrease in average costs could be the spread of fixed costs over a greater number of units of output, which might come from plant size, significant research and development costs, marketing or market research costs, engineering, etc. Increasing the size of the firm's market decreases average production costs. Consumers benefit from more choices and lower prices. Product differentiation is enhanced through the introduction of a foreign firm's products in the domestic market. External economies of scale come from a concentration of an industry in a specific geographic location. There is no cost advantage to the firm being larger, but because the industry is focused in a specific location, labor and other input markets are deep and highly specialized. Firms benefit from knowledge spillover in both formal and informal ways.
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Starting from long-run equilibrium, a decrease in autonomous investment results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; higher C. higher; potential D. lower; higher
A disadvantage associated with decentralizing the decision-making process in an organization is that
A. the cost of transferring information between the CEO and other decision makers can be high. B. the CEO is likely to make suboptimal decisions. C. it makes the three legs of the architectural stool of an organization inconsistent with each other. D. it prevents firms from benchmarking other firms to determine value-enhancing policies.
Nations that borrow from abroad to support current investment will
A) always sacrifice future consumption. B) sacrifice future consumption only if the investments are profitable. C) always be better off in the future. D) be better off in the future if the investments are profitable.
The limited liability enjoyed by Jitters Coffee Company Corporation is a benefit that protects
A) its employees. B) its Board of Directors. C) its stockholders. D) all of the above