Two firms can use vertical integration to hedge risks,because an increase in price represents an increase in revenues for one firm,offsetting an increase in costs for the other firm.

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Vertical integration involves two firms at different stages of production or distribution merging to form a single entity. This can help to hedge risks because an increase in price can benefit one firm by increasing revenues, while at the same time increasing costs for the other firm. For example, if a dairy farm and a cheese factory merge, an increase in the price of milk could benefit the dairy farm's revenue while also increasing the cheese factory's costs, but the merged entity would ultimately benefit. Thus, vertical integration can be a strategy for hedging risks.

Two Firms Can Use Vertical Integration to Hedge Risks,because an Increase