The original comparative advantage model that used the relative abundance of factors of production to explain comparative advantage assumed that countries:
a. employed all four factors of production; land, labor, capital, and entrepreneurship.
b. employed only two factors of production; labor and capital.
c. employed only two factors of production; land and entrepreneurial ability.
d. worked with a fixed capital stock.
e. were free to vary their employment of only one factor of production; labor.
QUESTION 2The relationship between inputs used by a firm and output produced is given by the cost function.
Indicate whether the statement is true or false
QUESTION 3Each firm under monopolistic competition produces a unique product which does not have a close substitute.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 4Why do short-run profits in a perfectly competitive industry tend to disappear over time?
QUESTION 5According to the Heckscher-Ohlin theory, comparative advantage is based on:
a. labor productivity differences.
b. product life cycles.
c. the availability of skilled resources.
d. consumer tastes and preferences.
e. the relative abundance of the factors of production.
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