Economics Answers

Reversal of FDI A number of global auto manufacturers have decided to stop producing cars in Australia and closed down their plants.
a. What are the potential reasons behind an auto MNC’s decision to cease production in Australia?
b. One solution to prevent a foreign auto manufacturer from leaving Australia is to offer a subsidy. Explain how a subsidy may induce an auto maker to remain in Australia?
c. It was observed that even after receiving subsidies from the Australian government, several foreign auto makers decided to cease manufacturing in Australia. Explain the reasons behind this outcome.

FDI Strategy. Rip Curl, an Australian designer, manufacturer and retailer of surfing sportswear has decided to establish a subsidiary in Brazil that will manufacture and sell their products there. It expects that its cost of producing their products will be one-third the cost of producing them in Australia. Assuming that its production cost estimates are accurate, is Rip Curl’s strategy sensible? Explain.

Opportunities in Less Developed Countries. Offer your opinion on why economies of some less developed countries with strict restrictions on international trade and FDI are somewhat independent from economies of other countries. Why would MNCs desire to enter such countries? If these countries relaxed their restrictions, would their economies continue to be independent of other economies? Explain.

Capitalising on Low-Cost Labour. Some MNCs establish a manufacturing facility where there is a relatively low cost of labour, but they sometimes close the facility later because the cost advantage dissipates. Why do you think the relative cost advantage of these countries is reduced over time? (Ignore possible exchange rate effects.)

FDI Restrictions in Selected Industries Some countries restrict foreign ownership in selected industries such as banking, media and telecommunications.
a. If Australia introduced fresh restrictions on foreign ownership in the real estate sector how would this affect Australian real estate companies? Australian home owners? Renters?
b. If Australia removed previously existing restrictions on foreign ownership in the banking sector, how would this event affect Australian-owned banks? Bank customers? Shareholders of Australian banks?

Motives for FDI Some MNCs from developed countries are keen to enter dynamic emerging markets such as China. On the other hand, several Chinese companies have set up subsidiaries in developed countries such as Germany. How are the motivations of the Chinese companies different from developed country MNCs?

Impact of a Weak Currency on Feasibility of FDI. Fisher and Paykel Appliances, a New Zealand manufacturer of white goods, plans to establish a subsidiary in Indonesia in order to penetrate the Indonesian market. Their executives believe that the Indonesian Rupiah’s value is relatively strong and will weaken against the New Zealand dollar over time. If their expectations about the rupiah’s value are correct, how will this affect the feasibility of the project? Explain.

explain the involvement of operational staff in the consultative processes for advising on cost information when formulating budgets and the implications for expense in the organization

A chocolate manufacturing company’s production function is Q = 5KL, where Q is output rate, L is the amount of labour it uses per period of time, and K is the amount of capital it uses per period of time. The price of labour is GH¢1.00 per unit of labour, and the price of capital is GH¢2.00 per unit of capital. The company hires you to determine which combination of inputs to use to produce 20 units of output per period.
a) Determine the combination of labour and capital that the company should hire in order to maximize profits.
b) Suppose that the price of labour increase to GH¢2.00 per unit. What effect will this have on output per unit of labour?
Is the company’s production subject to decreasing returns to scale? Why or why not?

a) Suppose the own price elasticity of demand for good X is -2, its income elasticity of demand is 3, its advertising elasticity of demand is 4, and the cross-price elasticity of demand between it and good Y is -6. Determine how much the consumption of this good will change if:

i. The price of good X increases by 5 percent.
ii. The price of good Y increase by 10 percent.
iii. Advertising decreases by 2 percent.
iv. Income falls by 3 percent.