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

---

Definitions:

Financial Statements

Consolidated documents that track and report an entity's financial performance and health, including balance sheet, income statement, and cash flow statement.

Balance Sheet

A financial statement that presents the financial position of a company at a specific point in time.

Income Statement

A financial statement that shows a company's revenue and expenses over a specific period, resulting in a net profit or loss.

Statement of Retained Earnings

A financial statement that shows how a company's retained earnings have changed over a given period due to profits retained in the business or dividends distributed.