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ECO 305 WEEK 7 QUIZ 6 CHAPTER 9

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ECO 305 WEEK 7 QUIZ 6 CHAPTER 9

MULTIPLE CHOICE

1. “Risk spreading” is a motive most likely to be served when firms undergo:
a. Horizontal integration
b. Vertical integration
c. Conglomerate integration
d. None of the above

2. The source (home) location of most of the world’s leading multinational enterprises is:
a. North America and Europe
b. North America and Asia
c. Europe and South America
d. Europe and Asia

3. Which type of multinational diversification occurs when the parent firm establishes foreign subsidiaries to produce intermediate goods going into the production of finished goods?
a. Forward vertical integration
b. Backward vertical integration
c. Forward horizontal integration
d. Backward horizontal integration

4. Suppose that an American automobile manufacturer establishes foreign subsidiaries to market the automobiles. This practice is referred to as:
a. Forward vertical integration
b. Forward conglomerate integration
c. Backward vertical integration
d. Backward conglomerate integration

5. Suppose that a steel manufacturer headquartered in Japan sets up a subsidiary in Canada to produce steel. This practice is referred to as:
a. Conglomerate integration
b. Forward vertical integration
c. Backward vertical integration
d. Horizontal integration

6. 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:
a. Horizontal integration
b. Conglomerate integration
c. Forward vertical integration
d. Backward vertical integration

7. Which of the following best refers to the outright construction or purchase abroad of productive facilities, such as manufacturing plants, by domestic residents?
a. Direct investment
b. Portfolio investment
c. Short-term capital investment
d. Long-term capital investment

8. In recent years, the largest amount of U.S. direct investment abroad has occurred in:
a. Central America
b. South America
c. Europe
d. Japan

9. In recent years, most foreign direct investment in the United States has come from:
a. Western Europe
b. Central America
c. South America
d. Asia

10. Most U.S. direct investment abroad occurs in:
a. Communications
b. Petroleum
c. Finance and insurance
d. Manufacturing

11. Most foreign direct investment in the United States occurs in:
a. Public utilities
b. Communications
c. Manufacturing
d. Mining and smelting

12. Which of the following is not a significant motive for the formation of multinational enterprises?
a. Avoiding tariffs by obtaining foreign manufacturing facilities
b. Obtaining the benefits from overseas comparative advantages
c. The acquisition of natural resource supply sources
d. Subsidies granted by the home government to overseas corporations

13. 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:
a. International dumping
b. Cost-plus pricing
c. Transfer pricing
d. Technological transfer

14. Multinational enterprises may provide benefits to their source (home) countries because they may:
a. Secure raw materials for the source country
b. Shift source country technology overseas via licensing
c. Export products which reflect source-country comparative disadvantage
d. Result in lower wages for source-country workers

15. Trade analysis involving multinational enterprises differs from our conventional trade analysis in that multinational enterprise analysis emphasizes:
a. Absolute cost differentials rather than comparative cost differentials
b. The international movement of factor inputs rather than finished goods
c. Purely competitive markets rather than imperfectly competitive markets
d. Portfolio investments rather than direct foreign investments

16. Direct foreign investment has taken all of the following forms except:
a. Investors buying bonds of an existing firm overseas
b. The creation of a wholly owned business enterprise overseas
c. The takeover of an existing company overseas
d. The construction of a manufacturing plant overseas

17. Which of the following would best explain why foreign direct investment might be attracted to the United States?
a. U.S. price ceilings that hold down the price of energy
b. U.S. wage rates exceeding the productivity of U.S. labor
c. Artificially high prices being charged for the stock of U.S. firms
d. Anticipations of future reductions in U.S. tariff levels

18. Both Coca-Cola Co. and Pepsi-Cola Co. are multinational firms in that their soft drinks are bottled throughout the world. This practice illustrates:
a. Backward vertical integration
b. Forward vertical integration
c. Horizontal integration
d. Conglomerate integration

19. 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?
a. R&D generating improved technology
b. Development of more productive machinery
c. New work rules promoting worker efficiency
d. Lower wages extracted from workers

20. All of the following are potential advantages of an international joint venture except:
a. Sharing research and development costs among corporations
b. Forestalling protectionism against imports
c. Establishing work rules promoting higher labor productivity
d. Operating at diseconomy-of-scale output levels

21. Which term best describes the New United Motor Manufacturing Co.?
a. Multinational enterprise
b. International joint venture
c. Multilateral contract
d. International commodity agreement

22. Multinational enterprises:
a. Increase the transfer of technology between nations
b. Make it harder for nations to foster activities of comparative advantage
c. Always enjoy political harmony in nations where their subsidiaries operate
d. Require governmental subsidies in order to conduct worldwide operations

23. Firms undertake multinational operations in order to:
a. Hire low-wage workers
b. Manufacture in nations they have difficulty exporting to
c. Obtain necessary factor inputs
d. All of the above

24. Multinational enterprises face problems since they:
a. Cannot benefit from the advantages of comparative advantage
b. May raise political problems in countries where their subsidiaries operate
c. Can invest only at home, but not overseas
d. Can invest only overseas, but not at home

25. American labor unions have recently maintained that U.S. multinational enterprises have been:
a. Exporting American jobs by investing overseas
b. Exporting American jobs by keeping investment in the United States
c. Importing cheap foreign workers by shifting U.S. investment overseas
d. Importing cheap foreign workers by keeping U.S. investment at home

26. American labor unions accuse U.S. multinational firms of all of the following except: that such firms
a. Enjoy unfair advantages in taxation
b. Export jobs by shifting technology overseas
c. Export jobs by shifting investment overseas
d. Operate at output levels where scale economies occur

27. 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?
a. Transfer pricing
b. International dumping
c. Price discrimination
d. Full-cost pricing

28. Which business device involves the creation of a new business by two or more companies, often for a limited period of time?
a. Multinational enterprise
b. International joint venture
c. Horizontal merger
d. Vertical merger

29. International joint ventures can lead to welfare losses when the newly established firm:
a. Adds to the preexistent productive capacity
b. Enters markets neither parent could have entered individually
c. Yields cost reductions unavailable to parent firms
d. Gives rise to increased amounts of market power

30. Multinational enterprises:
a. Always produce primary goods
b. Always produce manufactured goods
c. Produce primary goods or manufactured goods
d. None of the above

31. Consider Figure 9.1. With Sony Company and American Company behaving as competitors, the equilibrium price and output respectively equal:
a. $4 and 2 units
b. $4 and 4 units
c. $6 and 2 units
d. $6 and 4 units

32. Consider Figure 9.1. At the equilibrium price, domestic households attain ____ of consumer surplus:
a. $4
b. $8
c. $12
d. $16

33. 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:
a. $6, 2 units, $4
b. $4, 2 units, $2
c. $6, 4 units, $4
d. $4, 4 units, $2

34. Consider Figure 9.1. Compared to the market equilibrium position achieved by Sony Company and American Company as competitors, Venture Company as a monopoly leads to a deadweight loss of consumer surplus of:
a. $2
b. $4
c. $6
d. $8

35. 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:
a. No change
b. Gain of $2
c. Gain of $4
d. Loss of $2

36. Consider Figure 9.1. Assume Venture Company’s formation yields new cost reductions, indicated by MC1=AC1, which result from wage concessions accepted by Venture Company employees. The net effect of Venture Company’s formation on the welfare of the domestic economy is:
a. No change
b. Gain of $2
c. Loss of $2
d. Loss of $4

37. Consider Figure 9.1. Assume Venture Company’s formation yields new cost reductions, indicated by MC1=AC1, which result from changes in work rules by Venture Company employees that led to higher worker productivity. The net effect of Venture Company’s formation on the welfare of the domestic economy is:
a. No change
b. Gain of $2
c. Gain of $4
d. Loss of $2

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