Which of the Following Conclusions Can We Make About Vertical

question 14

Multiple Choice

Which of the following conclusions can we make about vertical integration with regard to scale and scope economies?

• 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:

Computer Equipment

Tangible assets related to computers and technology used in the operational activities of a business, such as servers, desktops, and peripherals.

Capital Expenditures

Investments in physical assets like property, plant, and equipment, which are expected to improve a company’s future productive capacity.

Operating Efficiency

A metric that indicates the ratio of output gained to the input expended in the business process.

Extend Its Useful Life

The process of prolonging the period over which an asset can productively be used, often through maintenance or improvements.