Point 2a The removal of trade barriers can also result in an increase in demand

Point 2a the removal of trade barriers can also

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[Point 2a] The removal of trade barriers can also result in an increase in demand for a country’s exports, leading to a greater derived demand for factors of production. [Elaboration and example] This greater demand for factors of production leads to a shortage and subsequently leads to higher prices of factor inputs, such as labour. This would lead to an increase in per unit costs of production, ceteris paribus. For firms that are not involved in the export sector and do not enjoy an increase in demand, the increase in costs could lead to a fall in the profits of the firm.
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(b) Evaluate the various strategies a firm can adopt to respond to the challenges posed by globalisation. [15] Suggested Body 2: Globalisation also poses a challenge to firms in the form of rising costs. [Point 2b] In response to rising costs due to greater competition for factor inputs, the firm can pursue R&D in the form of process innovation to lower costs and maintain profits. [Elaboration and example] For instance, investments into developing better machinery that can use less fuel to operate and thus produce more output for the same amount of fuel. This can increase productivity of production, lowering costs of production per unit. (Diagram of AC and MC shifting down) This can mitigate any increase in costs of production caused by greater competition for limited factors of production. When firms make decision at the new MC = MR, output increases and the price charged will now be lower and the firm will be better able to compete with foreign imports. [Link] With process innovation, the firm will also be able to increase the amount of profits earned, successfully responding to the challenge posed by globalisation in terms of cost. [Evaluation] R&D is costly, takes a long time to show results (may not always yield positive results for the money invested in it.
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(b) Evaluate the various strategies a firm can adopt to respond to the challenges posed by globalisation. [15] Suggested Body 2: Globalisation also poses a challenge to firms in the form of rising costs. OR [Point 2c] In response to rising costs due to greater competition for factor inputs, the firm can consider outsourcing or sourcing for cheaper factor inputs from foreign sources. [Elaboration and example] Since globalisation also gives rise to the improvement in transport and communications technology allow firms to produce different parts of their goods in different countries before finally assembling them into one finished product (e.g. Apple iPhones) *similar analysis to 2b shift AC and MC down to increase profits [Evaluation] Outsourcing requires prior effort by firm to set up the network and partnerships to make it feasible. Globalisation may not always be applied equally across all countries and all goods.
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