Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

Match the following economic concepts with their descriptions:

Match the following outcomes with their causes:

Match the following sectors with their characteristics:

Match the following cost concepts with their definitions:

Match the following market structures with their characteristics:

Match the following demand function terms with their meanings:

Match the following industry performance indicators with their descriptions:

Match the following characteristics of firms in monopolistic competition with their representations:

Internal economies of scale result when large firms have a cost advantage over ______ firms, causing the industry to become uncompetitive.

Internal economies of scale imply that a firm’s average cost of production decreases the more output it ______.

Perfect competition that drives the price of a good down to marginal cost would imply losses for those firms because they would not be able to recover the higher costs incurred from producing the initial units of ______.

In most sectors, goods are differentiated from each other and there are other differences across ______.

Integration causes the better-performing firms to thrive and expand, while the worse-performing firms ______.

The demand curve the firm faces is a straight line $Q = A - B(P)$, where Q is the number of units the firm sells, P the price per unit, and A and B are constants. Marginal revenue equals MR = $P - \frac{Q}{B}$. Suppose that total costs are C = F + c(Q), where F is fixed costs, those independent of the level of output, and c is the constant marginal cost. Average cost is the cost of production (C) divided by the total quantity of production (Q). $AC = \frac{C}{Q} = \frac{F}{Q} + c$. Marginal cost is the cost of producing an additional unit of output. A larger firm is more efficient because average cost decreases as output Q increases: internal economies of scale. The profit-maximizing output occurs where marginal revenue equals marginal cost. At the intersection of the MC and MR curves, the revenue gained from selling an extra unit equals the cost of producing that unit. The monopolist earns some monopoly profits, as indicated by the shaded box, when P > AC. Monopolistic competition is a simple model of an imperfectly competitive industry that assumes that each firm 1. can differentiate its product from the product of competitors, and 2. takes the prices charged by its rivals as given. A firm in a monopolistically competitive industry is expected to sell – more as total sales in the industry increase and as prices charged by rivals increase, – less as the number of firms in the industry decreases and as the firm’s price increases. These concepts are represented by the ______nction: Monopolistic Competition $Q = S[\frac{1}{n} - b(P - P)]$, where Q is an individual firm’s sales, S is the total sales of the industry, n is the number of firms in the industry, b is a constant term representing the responsiveness of a firm’s sales to its price, P is the price charged by the firm itself, and P is the average price charged by its competitors. Assume that firms are symmetric: all firms face the same demand ______.

Each firm views itself as a price setter, choosing the price of its product. A monopoly is an industry with only one firm. An oligopoly is an industry with only a few firms. In these industries, the marginal ______ generated from selling more products is less than the uniform price charged for each product. – To sell more, a firm must lower the price of all units, not just the additional ones. – The marginal ______ function therefore lies below the demand function (which determines the price that customers are willing to pay). The profit-maximizing output occurs where marginal ______ equals marginal cost. At the intersection of the MC and MR curves, the ______ gained from selling an extra unit equals the cost of producing that unit. The monopolist earns some monopoly profits, as indicated by the shaded box, when P > AC.

An oligopoly is an industry with only a few firms. In these industries, the marginal revenue generated from selling more products is less than the uniform price charged for each product. – To sell more, a firm must lower the price of all units, not just the additional ones. – The marginal revenue ______ therefore lies below the demand ______ (which determines the price that customers are willing to pay). Marginal revenue equals MR = P - Q/B. Suppose that total costs are C = F + c(Q), where F is fixed costs, those independent of the level of output, and c is the constant marginal cost. The profit-maximizing output occurs where marginal revenue equals marginal cost.

A firm in a monopolistically competitive industry is expected to sell – more as total ______ in the industry increase and as prices charged by rivals increase, – less as the number of firms in the industry decreases and as the firm’s price increases. These concepts are represented by the function: Monopolistic Competition $Q = S[\frac{1}{n} - b(P - P)]$, where Q is an individual firm’s ______, S is the total ______ of the industry, n is the number of firms in the industry, b is a constant term representing the responsiveness of a firm’s ______ to its price, P is the price charged by the firm itself, and P is the average price charged by its competitors.

Average cost is the cost of production (C) divided by the total quantity of production (Q). $AC = \frac{C}{Q} = \frac{F}{Q} + c$. Marginal cost is the cost of producing an additional unit of output. A larger firm is more efficient because average cost decreases as output Q increases: internal ______ of scale.