Which of the Following Conclusions Can We Make About Vertical

question 3

Multiple Choice

Which of the following conclusions can we make about vertical integration with regards to asset specificity?

• A) If asset specificity is significant enough, vertical integration will be more profitable than arm's-length market purchases, even when production of the input is characterized by strong scale economies or when the firm's product market scale is small.
• B) A firm gains more from vertical integration when outside market specialists are better able to take advantage of economies of scale and scope
• C) A firm with a larger share of the product market will benefit more from vertical integration than a firm with a smaller share of the product market
• D) The more a firm produces, the greater its input and this ultimately decreases the likelihood that in-house production can take as much advantage of economies of scale and scope as an outside market specialist
• E) If a firm is considering whether to make or buy an input requiring significant up-front setup costs, and there is a large market outside the firm for the input, then the firm should buy the input from outside market specialists

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Definitions:

Marginal Cost

The financial increase required to produce one more unit of a good or service.

Weekly Wage

The total amount of money or compensation paid to an employee by an employer for work performed over the course of a week.

University

An educational institution designed for instruction, examination, or both, of students in many branches of advanced learning.

Monopolistic Distributor

An intermediary that possesses the exclusive power to distribute a product or service within a particular market, influencing prices and availability.