Question 1

Which of the following in the late 19ᵗʰ century was predicted by the asset-specificity hypothesis?
A)Forward integration was most likely to occur for products that require specialized investments in human capital
B)Increases in the size of manufacturing firms led to independent wholesale and marketing agents losing scale/scope cost advantages and in turn led to manufacturers forward integrating into marketing and distribution
C)Forward integration was most likely to occur for products that do not require specialized investments in equipment and facilities
D)For industries with small manufacturers,marketing relied on specialized assets
E)For industries with small manufacturers,distribution relied on specialized assets

Accepted Answer

A

Question 2

Suppose we have two firms (Firm 1 & Firm 2)enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain.What term best describes the organization of the transaction where Firm 2 owns the assets of Firm 1?
A)Backward Integration
B)Forward integration
C)Nonintegration
D)Contractually unbound
E)Contractually bound

Accepted Answer

Backward integration occurs when a company expands its role to fulfill tasks formerly completed by businesses up the supply chain - in this case, Firm 2 owning the assets of Firm 1, which is upstream.

Question 3

The concept of who gets to control resources,make decisions and allocate profits is known as:
A)Matrix Management Outcome (MMO)
B)The Property Rights Theory (PRT)
C)Complete Contract Theory (CCT)
D)Total Production Model (TPM)
E)Resource Allocation Theory (RAT)

Accepted Answer

The Property Rights Theory (PRT) deals with the concept of control over resources, decision-making authority, and profits allocation. It analyzes different forms of property rights and their impact on economic outcomes. Therefore, PRT is the best choice for this question among the given options.

Question 4

Which of the following is true with regard to the difference in production costs between an item produced in a vertically integrated firm and an item exchanged through an arm's length market transaction as the level of asset specificity increases?
A)The cost difference increases with greater asset specificity
B)Scale-based advantages of outside suppliers are likely to be stronger with greater asset specificity
C)The cost difference declines with greater asset specificity
D)Scope-based advantages of outside suppliers are likely to be stronger with greater asset specificity
E)The costs are negative for all levels of asset specificity

Accepted Answer

The answer of Which of the following is true with...

Question 5

According to the GHM Theory,the choice between an in-house sales force versus independent agents should turn on the relative importance of investments in developing persistent clients by the agent versus list-building activities by the insurance firm.What would GHM thus predict about the sales of whole life versus term life insurance?
A)Both would be sold by the insurance company's in-house sales force
B)Whole life would be sold by the insurance company's in-house sales force;term by an independent agent
C)Whole life would be sold by an independent agent;term by the insurance company's in-house sales force
D)Both would be sold by an independent agent
E)An insurance company would try to "buy" the business (whole and term life insurance)of its independent agents

Accepted Answer

GHM Theory suggests that when the sales process requires significant investment in developing persistent clients, an in-house sales force is preferred due to better alignment of incentives and control. Whole life insurance, which involves long-term relationships and complex products, fits this criterion. Term life insurance, being simpler and requiring less ongoing client management, can be effectively sold through independent agents.

Question 6

Which of the following conclusions can we make about vertical integration with regards to product market share and scope?
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 multiple product lines will benefit more from being vertically integrated in the production of components for those products in which it can achieve significant market scale
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

Accepted Answer

The answer of Which of the following conclusions can we...

Question 7

Why are the current health care systems on the rise being built around the integration of clinical information technology and disease management systems?
A)They both have high costs
B)They both are new trends in health care
C)They are easy to integrate
D)They do not require a significant investment to integrate
E)They both require asset specificity and coordination

Accepted Answer

The integration of clinical information technology and disease management systems requires asset specificity and coordination, which means that they are interdependent and require collaboration to be successful. This is why they are being built around each other in the current health care systems on the rise. Additionally, these systems have shown to improve patient outcomes and reduce costs in the long run, making them a worthwhile investment despite their initial high costs.

Question 8

Which of the following in the late 19ᵗʰ century was predicted by the firm-size hypothesis?
A)Forward integration was most likely to occur for products that require specialized investments in human capital
B)Increases in the size of manufacturing firms led to independent wholesale and marketing agents losing scale/scope cost advantages and in turn led to manufacturers forward integrating into marketing and distribution
C)Forward integration was most likely to occur for products that do not require specialized investments in equipment and facilities
D)For industries with small manufacturers,marketing relied on specialized assets
E)For industries with small manufacturers,distribution relied on specialized assets

Accepted Answer

The firm-size hypothesis predicted that as manufacturing firms grew in size, they would integrate forward into marketing and distribution, leading to independent wholesale and marketing agents losing scale/scope cost advantages.

Question 9

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

Accepted Answer

The answer of Which of the following conclusions can we...

Question 10

What concept describes the situation where the owner of an asset grants another party the right to use that asset,but the owner retains all controlling rights that are not explicitly stipulated in the contract?
A)Asset specificity
B)Non-contract rights of ownership
C)Control rights agreement
D)Residual rights of control
E)Coordination

Accepted Answer

The concept that describes this situation is residual rights of control, which means that the owner retains all controlling rights that are not explicitly stipulated in the contract. Option A (asset specificity) refers to the degree to which an asset is specialized for a specific use or task. Option B (non-contract rights of ownership) is not relevant to this concept. Option C (control rights agreement) is a made-up term that does not accurately describe this situation. Option E (coordination) refers to the process of directing and harmonizing activities within an organization, and is not directly related to the concept described in the question.

Question 11

What term describes when a firm has minimized the extent to which the exchange of goods and services in the vertical chain has been organized to minimize coordination,agency and transaction costs?
A)Agency efficiency
B)Technical efficiency
C)Lean compliant
D)Economizing
E)Six sigma compliant

Accepted Answer

Agency efficiency refers to the minimization of coordination, agency, and transaction costs in the vertical chain of a firm.

Question 12

Which of the following is true with regard to the difference in exchange costs between an item produced internally firm and an item purchased from an outside supplier through an arm's length market transaction as the level of asset specificity increases?
A)The cost difference is positive for both low and high levels of specificity
B)The cost difference is negative for both low and high levels of specificity
C)The cost difference is negative for low and positive for high levels of specificity
D)The cost difference is positive for low and negative for high levels of specificity
E)As asset specificity increases,the transaction costs of the market exchange decrease

Accepted Answer

As the level of asset specificity increases, the difference in exchange costs between an item produced internally and an item purchased from an outside supplier through an arm's length market transaction becomes more pronounced. At low levels of asset specificity, the difference may be positive or negative. However, at high levels of asset specificity, the firm incurs higher costs for using external suppliers due to the specialized nature of the asset. Therefore, the cost difference is positive for low levels of specificity and negative for high levels of specificity.

Question 13

Suppose we have two firms (Firm 1 & Firm 2)enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain.What term best describes the organization of the transaction where Firm 1 owns the assets of Firm 2?
A)Backward Integration
B)Forward integration
C)Nonintegration
D)Contractually unbound
E)Contractually bound

Accepted Answer

Forward integration occurs when a company expands its operations to include control over the direct distribution or supply of its products, which in this case means Firm 1 owning the assets of Firm 2, which is downstream in the vertical chain.

Question 14

The process by which governance develops is known as:
A)Vertical decision making (VDM)
B)Path Dependence
C)Internal design
D)Management evolution
E)Institutional learning

Accepted Answer

Path dependence is the process by which governance develops over time, in which decisions made in the past constrain the choices available in the future. Path dependence can be driven by factors such as historical events, power dynamics, or institutional structures. VDM, internal design, management evolution, and institutional learning are all important components of governance, but they do not capture the specific process of path dependence.

Question 15

The reduction of co-ordination and hold-up problems depends on:
A)Governance arrangements
B)Manager contracts
C)Required quality of finished product
D)Cost of upstream vertical supplies
E)None of the above

Accepted Answer

Governance arrangements, such as contracts and communication channels, can help reduce coordination and hold-up problems by specifying roles, responsibilities, and incentives for each party involved in the vertical relationship. Manager contracts (B) may also play a role in reducing hold-up problems, but they are not as effective as governance arrangements (A) in addressing coordination issues. Required quality of finished product (C) and cost of upstream vertical supplies (D) are important factors to consider in vertical relationships, but they do not directly affect coordination and hold-up problems.

Question 16

Suppose we have two firms (Firm 1 & Firm 2)enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain.What term best describes the organization of the transaction where the two firms are independent,each with control over its own assets?
A)Backward Integration
B)Forward integration
C)Nonintegration
D)Contractually unbound
E)Contractually bound

Accepted Answer

Nonintegration refers to a situation where two firms in a vertical chain are independent, each with control over its own assets. In this type of transaction, the two firms do not integrate their operations or assets, and instead operate separately while engaging in a transaction. Neither firm has control over the other. Therefore, option C is the correct answer. Option A (Backward Integration) refers to a situation where a firm acquires or merges with a supplier, while option B (Forward Integration) refers to a situation where a firm acquires or merges with a buyer. Option D (Contractually unbound) and Option E (Contractually bound) refer to the terms of the contract but do not describe the organization of the transaction.

Question 17

Which of the following causes finished goods prices not to maximize the joint profits of a manufacturer and its supplier?
A)Inefficient asset specificity
B)Lack of coordinated scope economies
C)Incomplete contracting
D)Double marginalization
E)None of the above

Accepted Answer

Double marginalization can occur when both the manufacturer and the supplier mark up their prices, resulting in higher prices for the finished goods and reducing the overall profits of the two parties. This is because the higher price results in lower demand, leading to lower profits for both parties. The other options listed (inefficient asset specificity, lack of coordinated scope economies, and incomplete contracting) can also affect joint profits, but they do not specifically lead to double marginalization.

Question 18

Which of the following conclusions can we make about vertical integration with regard to product market share and scope?
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

Accepted Answer

The conclusion that can be made about vertical integration with regard to product market share and scope is that 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.

Question 19

What term describes when a firm is using the least-cost production process?
A)Agency efficiency
B)Technical efficiency
C)Lean compliant
D)Economizing
E)Six sigma compliant

Accepted Answer

Technical efficiency refers to a situation where a firm is using the least amount of inputs to produce a given level of output, or equivalently, producing the maximum output from a given set of inputs, which aligns with the concept of using the least-cost production process.

Question 20

Which of the following describes when a manufacturer produces some of an input quantity itself and purchases the remaining portion from independent firms?
A)Forward Integration
B)Tapered integration
C)Backward Integration
D)Balanced integration
E)Combined integration

Accepted Answer

Tapered integration refers to a strategy where a company produces part of its inputs in-house while sourcing the rest from external suppliers. This approach allows the company to maintain some control over its supply chain while also benefiting from the specialization and economies of scale of external suppliers.

Quiz 4: Integration and Its Alternatives

Which of the following in the late 19ᵗʰ century was predicted by the asset-specificity hypothesis?

Suppose we have two firms (Firm 1 & Firm 2) enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain.What term best describes the organization of the transaction where Firm 2 owns the assets of Firm 1?

The concept of who gets to control resources,make decisions and allocate profits is known as:

Which of the following is true with regard to the difference in production costs between an item produced in a vertically integrated firm and an item exchanged through an arm's length market transaction as the level of asset specificity increases?

Which of the following conclusions can we make about vertical integration with regards to product market share and scope?

Why are the current health care systems on the rise being built around the integration of clinical information technology and disease management systems?

Which of the following in the late 19ᵗʰ century was predicted by the firm-size hypothesis?

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

What concept describes the situation where the owner of an asset grants another party the right to use that asset,but the owner retains all controlling rights that are not explicitly stipulated in the contract?

What term describes when a firm has minimized the extent to which the exchange of goods and services in the vertical chain has been organized to minimize coordination,agency and transaction costs?

Which of the following is true with regard to the difference in exchange costs between an item produced internally firm and an item purchased from an outside supplier through an arm's length market transaction as the level of asset specificity increases?

Suppose we have two firms (Firm 1 & Firm 2) enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain.What term best describes the organization of the transaction where Firm 1 owns the assets of Firm 2?

The process by which governance develops is known as:

The reduction of co-ordination and hold-up problems depends on:

Suppose we have two firms (Firm 1 & Firm 2) enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain.What term best describes the organization of the transaction where the two firms are independent,each with control over its own assets?

Which of the following causes finished goods prices not to maximize the joint profits of a manufacturer and its supplier?

Which of the following conclusions can we make about vertical integration with regard to product market share and scope?

What term describes when a firm is using the least-cost production process?

Which of the following describes when a manufacturer produces some of an input quantity itself and purchases the remaining portion from independent firms?