Suppose the production of helicopters is an industry characterized by increasing returns to scale and an Argentine firm, Cicare, is the only player in this market. The firm caters to the global market and earns a profit of $10 million. Flettner, a German firm has been considering entering this market for a while, but it is aware that its entry will cause each firm to lose about $4 million
However, a government subsidy allows Flettner to enter the helicopter market and Cicare incurs a loss of $4 million due to its entry. Eventually, Flettner evolves as the monopoly supplier of helicopters while Cicare is forced to shut down. This conclusion rests on which of the following assumptions?
a. The German government is experiencing a budget surplus.
b. There is low demand for Cicare automobiles in the world market.
c. The German government is able to forecast accurately the subsidy required to induce helicopter production.
d. The quality of Flettner's helicopters are inferior compared to that of Cicare's.
e. The Argentine government is not a proponent of "fair trade," hence does not retaliate by subsidizing Cicare.
c
You might also like to view...
Consider a downward-sloping demand curve. When the price of a normal good decreases, the income and substitution effects
A) work in the same direction to increase quantity demanded. B) work in the same direction to decrease quantity demanded. C) work in opposite directions and quantity demanded increases. D) work in opposite directions and quantity demanded decreases.
Adding the assumption of pure competition and complete flexibility of all prices and wages to the rational expectations hypothesis yields a theory that provides support for
A) passive policy making. B) active policy making. C) discretionary policy making. D) unemployment reducing policy making.
Which of the following could explain a decrease in labor supply to a particular labor market?
a. an increased preference for this type of work b. a decrease in the size of the population c. an increase in the number of firms in the market d. a leftward shift of the marginal revenue product curve of labor at a typical firm e. a reduction in wages rates for similar types of work
Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If the rules governing the room instead stated that smoking is allowed unless everyone in the room agrees to prohibit it, then:
A. the non-smoking occupants will pay the cigar smoker to not smoke. B. the cigar smoker will smoke and not have to pay the other occupants for the external cost. C. the parties may or may not be able to reach a negotiated agreement depending on the bargaining strength of each. D. the cigar smoker will smoke, and will pay each other occupant 50 cents.