EC 340 Exam #2 MSU with correct
answers 100% 2026
HW 6 Consider the following statement:
1) More than 1/2 the worlds trade is bilateral trade between developed countries
2) The share of world trade among developing countries is between 10-15%
a) only 1 is true
b) only 2 is true
c) 1 is true and 2 is false
d) both are true
e) both are false - Correct Answers d) both are true
True or false: most world trade is inter-industry trade - Correct Answers False
True or false: cross country difference in autarky prices can explain why fully assembled cars are
imported to the US from Mexico as well as exported to Mexico from the US - Correct Answers
False
The Ricardian and HO models assumed
a) Increasing returns to scale
b) Constant returns to scale
c) Decreasing returns to scale
d) increasing and then decreasing returns to scale - Correct Answers b) constant returns to scale
True or false: an industry exhibits increasing returns to scale if average cost decreases as output
increases - Correct Answers True
,What is the difference between internal and external economies of scale?
a) Internal refers to within a firm
b) internal refers to within an industry
c) Internal refers to within a country
d) External refers to between industries
e) External refers to between countries - Correct Answers a) internal refers to within a firm
Which of these is NOT an assumption of the Krugman model
a) differentiated products
b) increasing returns to scale
c) free entry
d) perfect competition - Correct Answers d) perfect competition
If the demand curve faced by an individual firm is downward sloping
a) If it raises price at all, then it loses all of its customers
b) if it raises price at all, then it loses only some of its customers
c) if it lowers price at all, then it captures all consumers in the market
d) if it lowers price at all, then it will not make any profits
e) A and C are true - Correct Answers b) if it raises price at all, then it loses only some of its
customers
consider the following statement regarding the Krugman model
, 1) markets are not perfectly competitive
2) producers of each variety will face a horizontal demand curve
a) only (1) is true
b) only (2) is true
c) both are true
d) both are false - Correct Answers a) only (1) is true
In the equilibrium of the Krugman model
a) industry profits are always zero, because of competition from entry
b) industry profits are above zero, because of monopoly power
c) industry profits are above zero, because price is set above marginal cost
d) industry profits are below zero because of fixed costs
e) (b) and (c) - Correct Answers a) industry profits are always zero, because of competition from
entry
In an industry with monopolistic competition, if the variable cost in the industry is constant at c
across all firms, then
a) all firms will set prices to c
b) all firms will set marginal revenues to c
c) all firms will set marginal revenue equal to price
d) (a) and (b)
e) none of the above - Correct Answers b) all firms will set marginal revenues to c
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answers 100% 2026
HW 6 Consider the following statement:
1) More than 1/2 the worlds trade is bilateral trade between developed countries
2) The share of world trade among developing countries is between 10-15%
a) only 1 is true
b) only 2 is true
c) 1 is true and 2 is false
d) both are true
e) both are false - Correct Answers d) both are true
True or false: most world trade is inter-industry trade - Correct Answers False
True or false: cross country difference in autarky prices can explain why fully assembled cars are
imported to the US from Mexico as well as exported to Mexico from the US - Correct Answers
False
The Ricardian and HO models assumed
a) Increasing returns to scale
b) Constant returns to scale
c) Decreasing returns to scale
d) increasing and then decreasing returns to scale - Correct Answers b) constant returns to scale
True or false: an industry exhibits increasing returns to scale if average cost decreases as output
increases - Correct Answers True
,What is the difference between internal and external economies of scale?
a) Internal refers to within a firm
b) internal refers to within an industry
c) Internal refers to within a country
d) External refers to between industries
e) External refers to between countries - Correct Answers a) internal refers to within a firm
Which of these is NOT an assumption of the Krugman model
a) differentiated products
b) increasing returns to scale
c) free entry
d) perfect competition - Correct Answers d) perfect competition
If the demand curve faced by an individual firm is downward sloping
a) If it raises price at all, then it loses all of its customers
b) if it raises price at all, then it loses only some of its customers
c) if it lowers price at all, then it captures all consumers in the market
d) if it lowers price at all, then it will not make any profits
e) A and C are true - Correct Answers b) if it raises price at all, then it loses only some of its
customers
consider the following statement regarding the Krugman model
, 1) markets are not perfectly competitive
2) producers of each variety will face a horizontal demand curve
a) only (1) is true
b) only (2) is true
c) both are true
d) both are false - Correct Answers a) only (1) is true
In the equilibrium of the Krugman model
a) industry profits are always zero, because of competition from entry
b) industry profits are above zero, because of monopoly power
c) industry profits are above zero, because price is set above marginal cost
d) industry profits are below zero because of fixed costs
e) (b) and (c) - Correct Answers a) industry profits are always zero, because of competition from
entry
In an industry with monopolistic competition, if the variable cost in the industry is constant at c
across all firms, then
a) all firms will set prices to c
b) all firms will set marginal revenues to c
c) all firms will set marginal revenue equal to price
d) (a) and (b)
e) none of the above - Correct Answers b) all firms will set marginal revenues to c
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