Suppose Igrushka estimates the demand for wooden dolls in France as 75,000 toys per year. Based on the curves AVC France and ATC Subsidiary, what is Igrushka's best strategy? O. Reassess the market potential in France. O License production technology to a French firm. O Establish a subsidiary factory in France. Suppose that Igrushka found a way to acquire capital at a lower cost than that paid by the French firm. Which of the following best describes how Igrushka's decision making may change? O The decision to license instead of forming a subsidiary will occur at a higher level of output. O The decision to form a subsidiary instead of licensing will occur at a lower level of output. O The subsidiary becomes completely inefficient at a lower level of output.

Suppose Igrushka estimates the demand for wooden dolls in France as 75,000 toys per year. Based on the curves AVC France and ATC Subsidiary, what is Igrushka's best strategy? O. Reassess the market potential in France. O License production technology to a French firm. O Establish a subsidiary factory in France. Suppose that Igrushka found a way to acquire capital at a lower cost than that paid by the French firm. Which of the following best describes how Igrushka's decision making may change? O The decision to license instead of forming a subsidiary will occur at a higher level of output. O The decision to form a subsidiary instead of licensing will occur at a lower level of output. O The subsidiary becomes completely inefficient at a lower level of output.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Igrushka is a profit-maximizing firm producing wooden dolls-a capital-intensive good-which are sold in its home country, Russia, and abroad in
France. Igrushka chose foreign production as a method of penetrating the French market and has to decide whether it is more efficient to directly
invest in France to establish a production subsidiary or to license the technology to a French firm to produce its goods.
On the following graph, AVCFrance is the average variable cost curve of a French firm producing wooden dolls. (This curve represents costs such as
labor and materials.) The curve ATCSubsidiary represents the total unit costs Igrushka will face if it establishes a subsidiary in France.
PER-UNIT COST (Dollars)
10
9
8
1
0
0
ATC
15
Subsidiary
30
45 60 75 90 105 120
PRODUCT (Thousands)
AVC France
135 150
?
4

Suppose Igrushka estimates the demand for wooden dolls in France as 75,000 toys per year.
Based on the curves AVC France and ATC Subsidiary, what is Igrushka's best strategy?
O.Reassess the market potential in France.
License production technology to a French firm.
O Establish a subsidiary factory in France.
Suppose that Igrushka found a way to acquire capital at a lower cost than that paid by the French firm.
Which of the following best describes how Igrushka's decision making may change?
The decision to license instead of forming a subsidiary will occur at a higher level of output.
The decision to form a subsidiary instead of licensing will occur at a lower level of output.
The subsidiary becomes completely inefficient at a lower level of output.
O The decision to license instead of forming a subsidiary will occur at a lower level of output..
e Cardinus

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