Chapter 8
Firms in the Global Economy: Export
Decisions, Outsourcing, and
Multinational Enterprises
◼ Chapter Organization
The Theory of Imperfect Competition
Monopoly: A Brief Review
Monopolistic Competition
Monopolistic Competition and Trade
The Effects of Increased Market Size
Gains from an Integrated Market: A Numerical Example
The Significance of Intra-Industry Trade
Case Study: Intra-Industry Trade in Action: The North American Auto Pact of 1964 and the North
American Free Trade Agreement (NAFTA)
Firm Responses to Trade: Winners, Losers, and Industry Performance
Performance Differences across Producers
The Effects of Increased Market Size
Trade Costs and Export Decisions
Dumping
Case Study: Antidumping as Protectionism
Multinationals and Outsourcing
Case Study: Patterns of Foreign Direct Investment Flows Around the World
The Firm’s Decision Regarding Foreign Direct Investment
Outsourcing
Case Study: Shipping Jobs Overseas? Offshoring and Unemployment in the United States
Consequences of Multinationals and Foreign Outsourcing
Summary
APPENDIX TO CHAPTER 8: Determining Marginal Revenue
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5. a. We know that the number of firms competing in a market increases as the size of the market
6. a. $10 million of IBM stock is nowhere near 10 percent of the total market value of IBM. Thus, this
is not considered Foreign Direct Investment.
7. a. This would be a horizontal FDI outflow from the United States and a horizontal FDI inflow
into Europe.
8. Even with internal economies of scale, there may still be an advantage to producing the same good
9. This question relates to the decision by a multinational to outsource production or to engage in direct
