In comparing exporting to direct foreign investment (DFI), an exporting operation will likely incur ____ fixed production costs and ____ transportation costs than DFI.
A) higher; higher
B) higher; lower
C) lower; lower
D) lower; higher

Question

Quizplus · Accepted Answer

When a company exports, it usually produces the goods in its home country and then ships them to the foreign market. This means that the fixed production costs for the company will not change, and they will still incur any costs associated with the domestic production process. However, they will likely face higher transportation costs due to the need to ship the products overseas. In contrast, when a company engages in direct foreign investment, they will typically establish production facilities in the foreign market. This means that they will incur lower transportation costs since the products will not need to be shipped as far. Additionally, they may also incur lower fixed production costs if they are able to take advantage of lower labor or material costs in the foreign market. Therefore, option D is the correct answer.

In Comparing Exporting to Direct Foreign Investment (DFI), an Exporting