Economics of Multinational Enterprise Name Institution QUESTION 1 International business is by no means recent phenomena. MNES have their roots in the international market. The Mnes exploits the market by setting up parallel production and distribution production rather than entering the market via trade. Therefore, contrary to the matching of perfect competition in the market, the Mnes demonstrated effectiveness of oligopolistic market even in a foreign market because it is able to provide a cheap diversification of the portfolio. From the national point of view, trade is profitable because it involves the transmission of factor inputs other than capital inputs. They include technology and experts in management, these inputs contribute to the development of not only the company but also the country. Trade is based on the concept of comparative advantage, therefore, both countries gains. On the other hand, the imperfect competition benefits the company. Furthermore, it reduces most of the risk faced by companies in the international market. Nonetheless, it leads to better terms of trade as the company enjoys the economies of scale.FDI was considered the most likely solution to maximize profits. Three reasons were presented: (i) the firm’s advantage may be very difficult to price; (ii) FDI eliminates the costs of defining and managing a licensing agreement; (iii) it is simply not possible to sell oligopolistic power. QUESTION 2 There are two types of foreign direct investment (FDI), horizontal and the vertical FDI. Horizontal investment refers to a situation whereby a company duplicates its activities in countries where it has identified investment opportunity. Consequently, vertical opportunity refers to a situation whereby a company stages of production to different countries. All over the world, companies consider two major factors as it chooses where to invest; the production cost and market viability. In the above case, the company in the USA is faced with the dilemma of either inverting horizontally or vertically in country Row. First of all, the comparison reveals that the average fixed cost in USA is $200 while in a foreign country Row is $225. The selling price of the products in USA is $ 250 while in Row is $300. The market share of this company in USA is $60 million. This company is considering building a plant in country Row where there are three established companies each with a market share of $100 million. These companies sell their products for $270. Notably, the company is USA want to establish a plant of the replica of the one in USA, in terms of the plant cost and expenses. Putting into considerations the factors of FDI, the company in the USA should not establish a plant in the country Row. Instead, the company should stage some of the operation activities in Row. By doing this, cost will be reduced while at the same time accessing the market. The selling price in Row is $300 which ...