Progressive Steel, Inc

question 106

Multiple Choice

Progressive Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces.The clay to make this brick is very rare, and only two brick plants in the United States make this type of brick.Progressive Steel owns one of these brick plants and buys all of its production.The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick.This significantly reduces the production cost of this type of brick.Which of the following statements is true?

• A) Progressive Steel has less flexibility now than if it were not vertically integrated.
• B) This is an example of a capacity balance problem.
• C) This is a result of conflicts of interest between the managers of the brick plant and the executives of Progressive Steel.
• D) The market power of Progressive Steel has been reducing vertical integration.

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Definitions:

Production Possibilities

A theoretical model depicting the various combinations of goods and services an economy can produce, given its available resources and technology.

Capital Goods

Capital goods are tangible assets such as buildings, machinery, and equipment that a business uses to produce goods or services.

Marginal Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen, especially in the context of resource allocation.

Production Possibilities Schedule

A table that shows the different combinations of two goods that can be produced with fixed resources and technology.