Question

1. Once a firm knows that foreign demand exists, its next step is to

a. use foreign direct investment.

b. negotiate a licensing agreement with the foreign government.

c. ascertain the lowest-cost method of supplying goods abroad.

d. cease operations in its home country.

1b. Suppose that Samsung’s production costs are the same in both China and India. Also suppose that Samsung can produce cellphones in China for an average cost of $10 per phone for 300 million phones, $12 per phone for 200 million phones, and $15 per phone for 100 million phones. If customers in India demand 100 million phones and customers in China demand 200 million phones, Samsung’s lowest cost option is to

a. produce phones only in China and export phones to India.

b. produce 100 million phones in India for Indian demand and produce 200 million phones in China for Chinese demand.

c. produce 150 million phones in India for Indian demand and 50 million to export to China and produce 150 million phones in China for Chinese demand.

d. produce phones only in India and export phones to China.

1c. Recent evidence suggests that wages paid by U.S. multinational enterprises to poor country workers are much lower than local manufacturing wages.

a. True b. False

Answer 1

(1) I must say they use option B which is to negotiate licensing agreement which is to taken permission from foreign country and then use option C to capture the market.

(1b) As there is no exporting/importing cost given, so we just need to calculate the total cost attached with them,

Total cost in option a is

300*$10 = $3000 million

Total cost in option b is

Producing 100 million in india is 100*$15 = $1500 million

producing 200 million in china would cost 200*$12 = $2400 million

Total = $3900 million

Total cost in option c is

Producing 150 million in india would cost 150*$12 = $1800 million

Producing 150 million in china would cost 150*$12 = $1800 million

Total cost in option d is

Total cost be would be 300*$10 = $3000

Total cost would be less in option A as there would be less export cost attached to india.

(1c) No this is not true as US dollar is strong enough to influence any other country currency. US MNC does not pay less as in most of the cases their currency is so much appreciated comparatively to other currency, so they pay more than their domestic counterparts to hire best talents.