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Unformatted text preview: No nation was ever ruined by trade Benjamin Franklin What do you think? Department of Economics University of Waterloo Econ 231(Section 002) - Introduction to International Economics Fall 2010 Exam 2 related information is provided in this file. Time & Date: Thursday, Nov 4 from 11.30 am to 12.50 pm Allocated rooms for the Exam: B1 271 & REV 200 Room location for Exam 2 is same as Exam 1 .Students are divided among rooms by the first letter of their last name. Please make sure that you arrive at the specified class room on time. To avoid confusion, visit the room prior to the test so that you know on the day of the test where to go. The file titled Room Location for Midterm Exam 1 & 2on Ace contains the information about the exact room location for individual students. Syllabus: Exam 2 will cover three chapters from the textbook. The chapters are: Chapter 6: Economies of Scale, Imperfect Competition, and International Trade Chapter 7: International Factor Movements Chapter 8: The Instruments of Trade Policy Assigned Problems: Chapter 6: Questions 1, 2, 5 & 7 Chapter 7: Questions 1, 2, 5, &7 Chapter 8: Questions 1, 2, 3, 5 & 6 Good luck with the studies! 1 Solution key for Assigned Questions from the Textbook Chapter 6: Question 1: Cases a and d reflect external economies of scale since concentration of the production of an industry in a few locations reduces the industrys costs even when the scale of operation of individual firms remains small. External economies need not lead to imperfect competition. The benefits of geographical concentration include a greater variety of specialized services to support industry operations and larger labour markets. Cases b and c reflect internal economies of scale and occur at the level of the individual firm. The larger the output of a product by a particular firm, the lower its average costs. This leads to imperfect competition in industries such as aircraft, and autos. Question 2: The profit maximizing output level of a monopolist occurs where marginal revenue equals marginal cost. Unlike the case of perfectly competitive markets, under monopoly marginal revenue is not equal to price. Marginal revenue is always less than price under imperfectly competitive markets because to sell an extra unit of output, the firm must lower the price of all units, not just the marginal one. Question 5: a. 17,000 + 150/ n = 5,000,000,000 n / S + 17,000. With S US = 300 million, the number of automakers equals three. With S E = 533 million, the number of automakers equals four. b. P US = 17,000 + 150/3, P US = $17,050. P E = 17,000 + 150/4, P E = $17,037.50. c. 17,000 + 150/ n = 5,000,000,000 n / S + 17,000. With S US+ E = 833 million, the number of total automakers now equals five. This helps to explain some of the consolidation that has happened in the industry since trade has become more free in recent decade. Prices fall in the United States as well as Europe to $17,030. Also, variety increases in both markets: in the United States as well as Europe to $17,030....
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This note was uploaded on 01/13/2011 for the course ECON 231 taught by Professor Rus during the Spring '08 term at Waterloo.
- Spring '08
- International Economics