6. Consider the US automobile industry, where firms with heterogeneousproductivity, subject to increasing returns to scale, produce a differenti-ated good and sell it in a monopolistically competitive market. Firms candecide whether to perform the entire production process in the US, or off-shore (through vertical FDI) part of the process, representing a share B ofthe variable cost, in Mexico, where wages are lower (WMEX < WUS = 1)The latter option entails a higher fixed cost (fvI > fD). Suppose that theUS government increases the share of variable cost that has to be sourcedin the U.S., so that B falls. Then:(a) only the least productive US multinationals would reduce FDI (i.e.,the volume of production in Mexico) and increase their price(b) only the most productive US multinationals would reduce FDI (i.e.,the volume of production in Mexico) and increase their price(c) the most productive US multinationals would increase FDI (i.e., thevolume of production in Mexico) and leave their price unchanged(d) none of the above

Trade and international relations are the study of resources, industrial services and commodities,…

Consider the US automobile industry, where firms with heterogeneous productivity, subject to increasing returns to scale, produce a differenti- ated good and sell it in a monopolistically competitive market. Firms can decide whether to perform the entire production process in the US, or off- shore (through vertical FDI) part of the process, representing a share 3 of the variable cost, in Mexico, where wages are lower (WMEX < wus = 1) The latter option entails a higher fixed cost (fv> fD). Suppose that the US government increases the share of variable cost that has to be sourced in the U.S., so that 8 falls. Then: (a) only the least productive US multinationals would reduce FDI (i.e., the volume of production in Mexico) and increase their price (b) only the most productive US multinationals would reduce FDI (i.e., the volume of production in Mexico) and increase their price (c) the most productive US multinationals would increase FDI (i.e., the volume of production in Mexico) and leave their price unchanged (d) none of the above

Consider the US automobile industry, where firms with heterogeneous productivity, subject to increasing returns to scale, produce a differenti- ated good and sell it in a monopolistically competitive market. Firms can decide whether to perform the entire production process in the US, or off- shore (through vertical FDI) part of the process, representing a share 3 of the variable cost, in Mexico, where wages are lower (WMEX < wus = 1) The latter option entails a higher fixed cost (fv> fD). Suppose that the US government increases the share of variable cost that has to be sourced in the U.S., so that 8 falls. Then: (a) only the least productive US multinationals would reduce FDI (i.e., the volume of production in Mexico) and increase their price (b) only the most productive US multinationals would reduce FDI (i.e., the volume of production in Mexico) and increase their price (c) the most productive US multinationals would increase FDI (i.e., the volume of production in Mexico) and leave their price unchanged (d) none of the above

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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