Really great job. Thank you so much. I really love it. Thank you so much for all of your help.
I need to hand this in tomorrow, can you please help me? I am so overwhelmed with papers and could not study this part yet 🙁
On Krugman and Multinationals (100 points) True / False / Uncertain.
For each of the following two statements, tell me if the statement is true, false or uncertain and explain why using words, figures, or both. Note: the explanation is more important than the answer.
1- (10 points). Consider a long run trading equilibrium in the Krugman model. An increase in the marginal cost of production will make some firms exit the market and equilibrium prices will increase as a result.
2- (10 points). According to the Krugman model, when a small country and a large country sign a free trade agreement, the large country gains more than the small one.
3- (10 points). The gains from trade in the Ricardian model are larger than the gains from trade in the Krugman model since the Krugman model assumes that countries are identical except for their size.
4- (10 points). A firm engaging in FDI in a foreign country of a certain size would never export to other similarly sized countries.
5- (10 points). With all other variables held constant, it is more likely for a firm to engage in vertical FDI in industries where the supply chains are longer (having more stages of production).
6- (10 points). A U.S. firm will engage in horizontal FDI in Canada rather than in Bolivia since the size of the Canadian market is larger than the size of the Bolivian market.
7- (10 points). Any advance in technology that increases horizontal FDI activity in the world, will reduce trade flows across countries.
8- (10 points). Any advance in technology that increases vertical FDI activity in the world will also increase trade flows across countries.
9- (10 points). Countries will always engage in horizontal FDI in remote countries to save on shipping costs.
10- (10 points). The more different countries are in terms of endowments or technology, the more likely it is that firms can reduce the marginal cost of production by engaging in vertical FDI.
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