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Economies of Scale, Imperfect Competition, and International Trade
Chapter 6
Economies of Scale, Imperfect Competition,
and International Trade

Multiple Choice Questions
1.
External economies of scale arise when the cost per unit
(a) rises as the industry grows larger.
(b) falls as the industry grows larger rises as the average firm grows larger.
(c) falls as the average firm grows larger.
(d) remains constant.
(e) None of the above.
Answer: B
2.
Internal economies of scale arise when the cost per unit
(a) rises as the industry grows larger.
(b) falls as the industry grows larger.
(c) rises as the average firm grows larger.
(d) falls as the average firm grows larger.
(e) None of the above.
Answer: D
3.
External economies of scale
(a) may be associated with a perfectly competitive industry.
(b) cannot be associated with a perfectly competitive industry.
(c) tends to result in one huge monopoly.
(d) tends to result in large profits for each firm.
(e) None of the above.
Answer: A
4.
Internal economies of scale
(a) may be associated with a perfectly competitive industry.
(b) cannot be associated with a perfectly competitive industry.
(c) are associated only with sophisticated products such as aircraft.
(d) cannot form the basis for international trade.
(e) None of the above.
Answer: B
5.
A monopolistic firm
(a) can sell as much as it wants for any price it determines in the market.
(b) cannot determine the price, which is determined by consumer demand.
(c) will never sell a product whose demand is inelastic at the quantity sold.
(d) cannot sell additional quantity unless it raises the price on each unit.
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(e) None of the above.
Answer: C
6.
Monopolistic competition is associated with
(a) cut-throat price competition.
(b) product differentiation.
(c) explicit consideration at firm level of the feedback effects of other firms’ pricing decisions.
(d) high profit margins.
(e) None of the above.
Answer: B
7.
The most common market structure is
(a) perfect competition.
(b) monopolistic competition.
(c) small-group oligopoly.
(d) perfectly vertical integration.
(e) None of the above.
Answer: B
8.
Where there are economies of scale, the scale of production possible in a country is constrained by
(a) the size of the country.
(b) the size of the trading partner’s country.
(c) the size of the domestic market.
(d) the size of the domestic plus the foreign market.
(e) None of the above.
Answer: D
9.
Where there are economies of scale, an increase in the size of the market will
(a) increase the number of firms and raise the price per unit.
(b) decrease the number of firms and raise the price per unit.
(c) increase the number of firms and lower the price per unit.
(d) decrease the number of firms and lower the price per unit.
(e) None of the above.
Answer: C
10.
The simultaneous export and import of widgets by the United States is an example of
(a) increasing returns to scale.
(b) imperfect competition.
(c) intra-industry trade.
(d) inter-industry trade.
(e) None of the above.
Answer: C
11.
If output more than doubles when all inputs are doubled, production is said to occur under conditions
of
(a) increasing returns to scale.
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Economies of Scale, Imperfect Competition, and International Trade
(b) imperfect competition.
(c) intra-industry trade.
(d) inter-industry trade.
(e) None of the above.
Answer: A
12.
Intra-industry trade can be explained in part by
(a) transportation costs within and between countries.
(b) problems of data aggregation and categorization.
(c) increasing returns to scale.
(d) All of the above.
(e) None of the above.
Answer: D
13.
If some industries exhibit internal (firm specific) increasing returns to scale in each country, we should
not expect to see
(a) intra-industry trade between countries.
(b) perfect competition in these industries.
(c) inter-industry trade between countries.
(d) high levels of specialization in both countries.
(e) None of the above.
Answer: B
14.
Intra-industry trade is most common in the trade patterns of
(a) developing countries of Asia and Africa.
(b) industrial countries of Western Europe.
(c) all countries.
(d) North-South trade.
(e) None of the above.
Answer: B
15.
International trade based on scale economies is likely to be associated with
(a) Ricardian comparative advantage.
(b) comparative advantage associated with Heckscher-Ohlin factor-proportions.
(c) comparative advantage based on quality and service.
(d) comparative advantage based on diminishing returns.
(e) None of the above.
Answer: E
16.
International trade based on external scale economies in both countries is likely to be carried out
by a
(a) relatively large number of price competing firms.
(b) relatively small number of price competing firms.
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(c) relatively small number of competing oligopolists.
(d) monopoly firms in each country/industry.
(e) None of the above.
Answer: A
17.
International trade based solely on internal scale economies in both countries is likely to be carried out
by a
(a) relatively large number of price competing firms.
(b) relatively small number of price competing firms.
(c) relatively small number of competing oligopolists.
(d) monopoly firms in each country/industry.
(e) None of the above.
Answer: D
18.
A monopoly firm engaged in international trade will
(a) equate average to local costs.
(b) equate marginal costs with foreign marginal revenues.
(c) equate marginal costs with the highest price the market will bear.
(d) equate marginal costs with marginal revenues in both domestic and in foreign markets.
(e) None of the above.
Answer: D
19.
A monopoly firm will maximize profits by
(a) charging the same price in domestic and in foreign markets.
(b) producing where the marginal revenue is higher in foreign markets.
(c) producing where the marginal revenue is higher in the domestic market.
(d) equating the marginal revenues in domestic and foreign markets.
(e) None of the above.
Answer: D
20.
A firm in monopolistic competition
(a) earns positive monopoly profits because each sells a differentiated product.
(b) earns positive oligopoly profits because each firm sells a differentiated product.
(c) earns zero economic profits because it is in perfectly or pure competition.
(d) earns zero economic profits because of free entry.
(e) None of the above.
Answer: D
21.
The larger the number of firms in a monopolistic competition situation,
(a) the larger are that country’s exports.
(b) the higher is the price charged.
(c) the fewer varieties are sold.
(d) the lower is the price charged.
(e) None of the above.
Answer: D
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Economies of Scale, Imperfect Competition, and International Trade
22.
The monopolistic competition model is one in which there is/are
(a) a monopoly.
(b) perfect competition.
(c) economies of scale.
(d) government intervention in the market.
(e) None of the above.
Answer: C
23.
In industries in which there are scale economies, the variety of goods that a country can produce is
constrained by
(a) the size of the labor force.
(b) anti-trust legislation.
(c) the size of the market.
(d) the fixed cost.
(e) None of the above.
Answer: C
24.
An industry is characterized by scale economies and exists in two countries. In order for consumers of
its products to enjoy both lower prices and more variety of choice,
(a) each country’s marginal cost must equal that of the other country.
(b) the marginal cost of this industry must equal marginal revenue in the other.
(c) the monopoly must lower prices in order to sell more.
(d) the two countries must engage in international trade one with the other.
(e) None of the above.
Answer: D
25.
A product is produced in a monopolistically competitive industry with scale economies. If this industry
exists in two countries, and these two countries engage in trade one with the other, then we would
expect
(a) the country in which the price of the product is lower will export the product.
(b) the country with a relative abundance of the factor of production in which production of the
product is intensive will export this product.
(c) each of the countries will export different varieties of the product to the other.
(d) neither country will export this product since there is no comparative advantage.
(e) None of the above.
Answer: C
26.
Two countries engaged in trade in products with no scale economies, produced under conditions of
perfect competition, are likely to be engaged in
(a) monopolistic competition.
(b) inter-industry trade.
(c) intra-industry trade.
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(d) Heckscher-Ohlin trade.
(e) None of the above.
Answer: B
27.
Two countries engaged in trade in products with scale economies, produced under conditions of
monopolistic competition, are likely to be engaged in
(a) price competition.
(b) inter-industry trade.
(c) intra-industry trade.
(d) Heckscher-Ohlinean trade.
(e) None of the above.
Answer: C
28.
History and accident determine the details of trade involving
(a) Ricardian and Classical comparative advantage.
(b) Heckscher-Ohlin model consideration.
(c) taste reversals.
(d) scale economies.
(e) None of the above.
Answer: D
29.
We often observe “pseudo-intra-industry trade” between the United States and Mexico. Actually, such
trade is consistent with
(a) oligopolistic markets.
(b) comparative advantage associated with Heckscher-Ohlin model.
(c) optimal tariff issues.
(d) huge sucking sound.
(e) None of the above.
Answer: B
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Intra-industry trade will tend to dominate trade flows when which of the following exists?
(a) Large differences between relative country factor availabilities
(b) Small differences between relative country factor availabilities
(c) Homogeneous products that cannot be differentiated
(d) Constant cost industries
(e) None of the above.
Answer: B
31.
The most common form of price discrimination in international trade is
(a) non-tariff barriers.
(b) Voluntary Export Restraints.
(c) dumping.
(d) preferential trade arrangements.
(e) None of the above.
Answer: C
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