According to the PLC theory, what is the most likely reason that companies manufacture products in locations with high labor rates during the introductory stage of a product's life cycle?
A) Doing so allows use of long production runs using capital-intensive methods.
B) Many consumers are willing to pay high costs for the newest products.
C) Transportation costs are reduced by focusing on markets in developed countries.
D) Import restrictions prevent production in countries other than the ones making product innovations.
Answer: B
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Multinational Business Chapter 5
- The growth of small-scale production technology will most likely enable small countries to produce products efficiently for their own consumption.
- The finite nature of natural resources should work as a disadvantage for the export prices of developing countries.
- The combination of free trade and free movement of production factors offers maximum production efficiency.
- The term brain drain describes the export of high-technology products in exchange for low-technology products.
- The foreign-born population as a percentage of total population is substantial for some countries and insignificant for others.
- The international mobility of labor includes workers, students, tourists, and retirees who travel to another country.
- Companies and individuals transfer capital internationally primarily because of expectations of earning higher returns.
- A strategic trade policy is one that develops industries to lessen dependence on foreign military goods.
- The existence of the four favorable conditions of the diamond of national advantage does not guarantee that an industry will develop in a given locale.
- The four favorable domestic conditions of the diamond of national advantage help to explain how and where globally competitive companies develop and sustain themselves.
- An exception to the PLC theory in terms of production location is often a product with very rapid change in innovation.
- Luxury products are the most likely types of products to behave according to the product life cycle theory of trade.
- According to the PLC theory of trade, most new products are produced in countries where wage rates are low.
- Many products' location of production will shift internationally as the products go through their life cycle.
- Trade occurs more between culturally dissimilar countries than between culturally similar countries.
- Most world trade takes place between raw material exporters and manufacturing exporters.
- The factor proportions theory holds that countries should improve their competitiveness by importing capital and skilled employees from abroad.
- The factor proportions theory holds that countries should concentrate production on those products that use their most abundant production factors.
- The top 10 exporting countries are dominated by developing countries.
- Countries with large land areas are generally less dependent on trade than countries with small land areas.
- According to theories of specialization in international trade, gains occur because specialized workers move to countries that can use their skills more effectively.
- The free trade theories of specialization assume that countries will be better off even though some people are unemployed.
- Comparative advantage theory holds that gains from trade are the result of capital movements from countries with low interest rates to countries with higher interest rates.
- The comparative advantage theory holds that a country will gain from trade even though it can produce all goods more efficiently than other countries.
- Under the theory of absolute advantage, countries hold two types of advantages—acquired advantages and technological advantages.
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