Which of the Following Statements Is False

question 40

Multiple Choice

Which of the following statements is false?

• A) Horizontal integration entails the merger of a firm and its supplier or a firm and its customer.
• B) Like insurance, hedging involves contracts or transactions that provide the firm with cash flows that offset its losses from price changes.
• C) For many firms, changes in the market prices of the raw materials they use and the goods they produce may be the most important source of risk to their profitability.
• D) Because an increase in the price of the commodity raises the firm's costs and the supplier's revenues, these firms can offset their risks by merging.

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Definitions:

Long-Run Scale

Refers to the time period in which all factors of production and costs are variable, allowing companies to adjust all inputs in response to market conditions.

Short-Run

A period in which at least one input is fixed, limiting the firm's capacity to adjust to changes in demand or market conditions.

Positive Profits

Financial gains that are greater than zero, indicating a company's revenues exceed its costs and expenses.

Variable Costs

Costs that change in proportion to the activity or volume of business, such as materials and labor.