Full Vertical Integration Compounds Risk Because

question 8

Multiple Choice

Full vertical integration compounds risk because

• A)top managers have a complete knowledge of the entire value chain.
• B)the capital invested and the fixed costs are often much higher for a vertically integrated firm.
• C)a decline in sales and profits in the end market affects all stages simultaneously.
• D)b and c.

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Definitions:

Variable Costs

Charges that adjust based on the degree of activity or output levels in an enterprise.

Profits

The financial gain achieved when the revenues from business activities exceed the expenses, costs, and taxes involved in sustaining the activity.

Revenue

The total amount of money generated by a company from its business activities, such as sales of products or services, before any expenses are deducted.

Futures Contract

A formal legal contract to purchase or sell a specific commodity or financial instrument at an agreed-upon price at a future date.