economics/trade, cost, and price
Multinational corporations are continually seeking sources of
comparative advantage by investing in developing countries. Sometimes,
they are initially willing to pay a high price for that advantage. For
example, U.S. tobacco companies create strong incentives for local
farmers in developing countries to grow tobacco instead of crops used
for domestic food production by offering underwritten loans, subsidies
for startup costs, and a guaranteed demand for their tobacco crops.
The following questions pertain to the foundations of modern trade
theory and comparative cost of production and pricing decisions:
Explain why the U.S. would subsidize the short run costs of production
for tobacco farmers in foreign countries. Do these practices guarantee
the tobacco farmers a profit in the short run? Long run? Explain.
How does this practice shift the equilibriums (price and output) for
tobacco and domestic food items (analyze both the local and
In the case with Acme Motors, what are the production gains to the
entire company from the facility in Nuevo Laredo, Tamaulipas
specializing in Autoturbo Quattro engines (i.e., why do they just make
engines in Nuevo Laredo rather than the entire auto)?
Why would Acme Motors shift its production of engines from Detroit to
Mexico and then shift the engines back to the U.S. to be assembled
into the finished auto?
What are the gains and losses for consumers in these types of
international production and trading patterns?
I need them by friday midnight
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