The Disadvantage of Vertical Integration Is That

question 145

Multiple Choice

The disadvantage of vertical integration is that:

• A) relationship-specific exchange may cause hold-up.
• B) long-term contracts may be inflexible.
• C) the principal-agent problem causes shirking.
• D) firms no longer specialize in what they do best.

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Definitions:

Hourly Wage

The rate an employee is paid for each hour of work.

Labor-Supply Curve

A graphical representation showing the relationship between the amount of labor workers are willing to provide at different wage rates.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or choosing to consume or produce one good or service over another.

Marginal Product

Marginal Product is the additional output resulting from a one-unit increase in the quantity of a particular input, holding all other inputs constant.