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.
QUESTION 2The breakeven price of a perfectly competitive firm is obtained at the point of intersection between the marginal revenue and marginal cost curves.
Indicate whether the statement is true or false
QUESTION 3An individual perfectly competitive firm's supply curve is its:
a. average-fixed-cost curve.
b. marginal revenue curve.
c. average-variable-cost curve.
d. marginal cost curve.
e. total cost curve.
QUESTION 4A monopoly firm is charging the price the market will bear at a level of output where MC equals 22 and is increasing, MR equals 20, and average variable cost equals 17 . To maximize profits, the firm should:
a. increase both output and price.
b. increase output but decrease the price.
c. decrease output and increase the price.
d. decrease both output and price.
QUESTION 5According to strategic trade policy, international trade largely involves firms that:
a. enjoy monopolistic power in the domestic market.
b. have a high initial cost of production.
c. pursue economies of scale.
d. have high opportunity costs.
e. generate adequate employment in the domestic economy.
QUESTION 6Assume that a rise in petroleum prices increases the cost of milk transportation from the dairies to the market. We can expect the long-run supply curve in this industry to shift downward.
Indicate whether the statement is true or false
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