Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

Flashcards covering key vocabulary and concepts from Chapter 8 of an economics textbook, focusing on firms in the global economy, export decisions, outsourcing, and multinational enterprises.

Internal Economies of Scale

Economies of scale that are internal to the firm, where a firm's average cost of production decreases the more output it produces.

Product Differentiation

When firms produce goods that are differentiated from one another, either in small ways (like bottled water) or significant ways (like cars).

Perfectly Competitive Market

Exists in a market where there are many buyers and sellers, none of whom represents a large part of the market, and firms are price takers.

Imperfect Competition

When only a few firms produce a good or when each firm produces a good that is differentiated from that of rival firms, leading firms to be aware that they can influence the prices of their products.

Pure Monopoly

A market in which a firm faces no competition and is a price setter, choosing the price of its product.

Marginal Revenue

The extra or marginal revenue the firm gains from selling an additional unit, always less than the price for a monopolist.

Average Cost of Production

The firm's total cost divided by its output, typically downward sloping due to economies of scale.

Marginal Cost

The amount it costs the firm to produce one extra unit.

Monopolistic Competition

A market structure where competitors sell differentiated products, allowing firms to remain price setters for their own individual product variety or brand.

Oligopoly

A market structure where a single firm has enough market share to influence market aggregates, and pricing decisions of firms are interdependent.

Intra-Industry Trade

Trade between similar countries with no comparative advantage differences, where both countries export and import similar goods.

Trade Cost

An additional cost that a firm must incur for each unit of output that it sells to customers across the border.

Dumping

Setting a lower price (net of trade costs) on exports than is charged domestically.

Antidumping Duty

A duty imposed on a firm found to be dumping.

Foreign Direct Investment (FDI)

When a U.S. firm buy more than 10 percent of a foreign firm, or when a U.S. firm builds a new production facility abroad.

Horizontal FDI

When a multinational replicates the production process in a foreign country

Vertical FDI

When the production chain is broken up, and parts of the production processes are transferred to the affiliate location.

Offshoring

The relocation of parts of the production chain abroad

Foreign Outsourcing

Contracting with an independent firm (supplier) to perform specific parts of the production process in a foreign location with the best cost advantage.