A Product Is Produced in a Monopolistically Competitive Industry with Scale

question 15

Multiple Choice

A product is produced in a monopolistically competitive industry with scale economies.If this industry exists in two countries,and these two countries engage in trade with each other,then we would expect

• A) each country will export different varieties of the product to the other.
• B) the country in which the price of the product is lower will export the product.
• C) the country with a relative abundance of the factor of production in which production of the product is intensive will export this product.
• D) neither country will export this product since there is no comparative advantage.
• E) the countries will trade only with other nations they are not in competition with.

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Definitions:

WACC

Weighted Average Cost of Capital; the average rate of return a company is expected to pay its security holders to finance its assets, integrating debt and equity.

Discount Rate

The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window.

FCFE Valuation Model

Free Cash Flow to Equity (FCFE) Valuation Model estimates the value of a company by calculating the present value of its expected future cash flows available to shareholders, after deducting operational expenses, taxes, and reinvestment needs.

Required Rate of Return on Equity

The minimum rate of return that investors expect to receive on their equity investment in a company, taking into account the risk associated with the investment.