The manager of Slick Lens, a sunglasses manufacturer, notices that the cost to purchase lenses for their sunglasses in the spot market has fallen. As a result of the change, which of the following is true?
A)The manager has less of an incentive to integrate forward.
B)The manager has more of an incentive to integrate forward.
C)The manager has less of an incentive to integrate backward.
D)The manager has more of an incentive to integrate backward.

Question

Quizplus · Accepted Answer

When the cost to purchase lenses (a key input) falls in the spot market, the company can buy lenses at a lower cost without needing to control the lens production process. This reduces the incentive to integrate backward (taking control of supply sources), as the external market is providing inputs at a cheaper rate.

The Manager of Slick Lens, a Sunglasses Manufacturer, Notices That