Question

1.. If trading costs over the physical distance separating the agglomerations decline sufficiently, international trade may take place even though the goods are similar, which can help to explain why intra-industry trade may or may not occur, irrespective of traditional economies of scale that are internal to firms.

Select one:

a. TRUE

b. FALSE

2. The fact that a the minimum efficient scale for a nation–s industry may be less than the scale it can attain without trade could provide a rationale for international trade.

Select one:

a. TRUE

b. FALSE

Answer 1

1. Answer : TRUE; Apart from barrier's to entry and market structure, a country's economic geography, its industry structure and trade plays an important role in defining whether a firm will divulgue in cross border exchange of good and services or not. Hence the statement that is true. Also the external economies and agglomeration explains the pattern of specializations in production and advantages in trade.

2. Answer : FALSE; A firm’s minimum efficient scale is the lowest scale necessary for it to achieve the economies of scale required to operate efficiently and competitively in its industry