Question 1

In order to lessen the monitoring problems and opportunistic behavior of a franchisor and a franchisee, franchise contracts:

Accepted Answer

A) create provisions for high liquidated damages. 
B) are complete in all respect. 
C) have similar fixed charge and royalty arrangements. 
D) include certain flexible clauses. 
A) create provisions for high liquidated damages. 
B) are complete in all respect. 
C) have similar fixed charge and royalty arrangements. 
D) include certain flexible clauses. C

Question 2

Which of the following transactions can be categorized as outsourcing?

Accepted Answer

A) A U.S.furniture manufacturer buying a lumber facility. 
B) A U.S.firm transferring some of its operations to its new subsidiary in India. 
C) Nike selling its sportswear to customers through its franchisees across the world. 
D) A U.S.cosmetics firm using an advertising agency to market its products. 
A) A U.S.furniture manufacturer buying a lumber facility. 
B) A U.S.firm transferring some of its operations to its new subsidiary in India. 
C) Nike selling its sportswear to customers through its franchisees across the world. 
D) A U.S.cosmetics firm using an advertising agency to market its products. D

Question 3

The ISO 9000 family of quality management and assurance procedures improve exchangeability by lowering the cost of obtaining information about the goods to be traded and the counterparties with whom individuals might trade.

Accepted Answer

A) True 
 B)False  True

Question 4

Among the different stages of red wine production (selection of grapes, crushing, fermentation, blending and fining, adding preservatives, filtration and bottling), the first stage-selection of grapes is called the downstream and the final stage-packaging/bottling is called the upstream.

Accepted Answer

A) True 
 B)False

Question 5

The figure given below represents two monopolists James and Jerry.James produces Good A using the input Good B which is produced by Jerry and has no other variable costs.James is the only consumer of Good B, and the marginal cost incurred by Jerry to produce Good B is zero.DA and DB represent the demand curves for Good A and Good B respectively.MRA and MRB represent the marginal revenue received from Good A and Good B respectively.It takes one unit of A to produce a unit of B.

-Refer to Figure.What would be the combined profit earned by the two monopolists if they agree to merge?

Accepted Answer

A) $48 
B) $24 
C) $12 
D) $36 
A) $48 
B) $24 
C) $12 
D) $36

Question 6

The figure given below represents two monopolists James and Jerry.James produces Good A using the input Good B which is produced by Jerry and has no other variable costs.James is the only consumer of Good B, and the marginal cost incurred by Jerry to produce Good B is zero.DA and DB represent the demand curves for Good A and Good B respectively.MRA and MRB represent the marginal revenue received from Good A and Good B respectively.It takes one unit of A to produce a unit of B.

-Refer to Figure.Which of the following agreements between James and Jerry would be feasible?

Accepted Answer

A) James pays Jerry an amount above $48 only if Jerry agrees to produce 8 units. 
B) James pays Jerry and amount below $24 only if Jerry agrees to produce 8 units. 
C) James pays Jerry an amount above $24 only if Jerry agrees to produce 8 units. 
D) James pays Jerry an amount below $12 only if Jerry agrees to produce 8 units. 
A) James pays Jerry an amount above $48 only if Jerry agrees to produce 8 units. 
B) James pays Jerry and amount below $24 only if Jerry agrees to produce 8 units. 
C) James pays Jerry an amount above $24 only if Jerry agrees to produce 8 units. 
D) James pays Jerry an amount below $12 only if Jerry agrees to produce 8 units.

Question 7

Although U.S.Steel is integrated into iron ore mining, it currently does not own any of the mines that supply its coking coal because:

Accepted Answer

A) the company has a high requirement of coking coal which cannot be supplied by a single mine. 
B) the coal prices are highly unpredictable and volatile. 
C) there are a limited number of coal suppliers. 
D) futures and options markets are available for coal. 
A) the company has a high requirement of coking coal which cannot be supplied by a single mine. 
B) the coal prices are highly unpredictable and volatile. 
C) there are a limited number of coal suppliers. 
D) futures and options markets are available for coal.

Question 8

The invention of the Bessemer converter in 1856:

Accepted Answer

A) increased the cost of continuous and coordinated operations of a steel industry. 
B) motivated downstream integration of the steel industry into coal mining. 
C) increased the efficient scale of steel production. 
D) increased volumetric interdependence between different stages of steel production. 
A) increased the cost of continuous and coordinated operations of a steel industry. 
B) motivated downstream integration of the steel industry into coal mining. 
C) increased the efficient scale of steel production. 
D) increased volumetric interdependence between different stages of steel production.

Question 9

A firm chooses vertical integration to reduce all of the following costs, EXCEPT:

Accepted Answer

A) the cost of investing in diversified assets. 
B) the cost of finding a trading partner. 
C) the cost of devising and enforcing an agreement. 
D) the cost of evaluating the other party's performance. 
A) the cost of investing in diversified assets. 
B) the cost of finding a trading partner. 
C) the cost of devising and enforcing an agreement. 
D) the cost of evaluating the other party's performance.

Question 10

According to the text, which of the following developments have taken place in the American steel industry during the past 40 years?

Accepted Answer

A) The percentage of steel produced in vertically integrated steel plants has increased. 
B) The percentage of steel produced in vertically integrated steel plants has decreased. 
C) More steel makers have integrated vertically into coal mining. 
D) More steel makers have integrated vertically into iron ore mining. 
A) The percentage of steel produced in vertically integrated steel plants has increased. 
B) The percentage of steel produced in vertically integrated steel plants has decreased. 
C) More steel makers have integrated vertically into coal mining. 
D) More steel makers have integrated vertically into iron ore mining.

Question 11

During the peak season, when demand for pipeline transport of natural gas at the maximum legally allowable price exceeds the available capacity:

Accepted Answer

A) buy-sell transactions take place. 
B) pipeline owners vertically integrate into gas production. 
C) price discrimination becomes prominent. 
D) pipeline owners use discretionary powers to ration capacity to shippers. 
A) buy-sell transactions take place. 
B) pipeline owners vertically integrate into gas production. 
C) price discrimination becomes prominent. 
D) pipeline owners use discretionary powers to ration capacity to shippers.

Question 12

_____ increases with the variability of outcomes and the underlying degree of randomness in the environment that can affect a business relationship.

Accepted Answer

A) The problem of double marginalization 
B) Asset specificity 
C) Uncertainty 
D) Volumetric interdependence 
A) The problem of double marginalization 
B) Asset specificity 
C) Uncertainty 
D) Volumetric interdependence

Question 13

_____, uncertainty, and risk of opportunism are the three major reasons due to which U.S.Steel prefers to own its mines, enrichment facilities, and ore carriers.

Accepted Answer

A) Involuntary transactions 
B) Transaction costs 
C) Nonspecificity of assets 
D) Trademark and credibility 
A) Involuntary transactions 
B) Transaction costs 
C) Nonspecificity of assets 
D) Trademark and credibility

Question 14

Explain briefly why U.S.Steel prefers to own its mines, enrichment facilities, and ore carriers.

Accepted Answer

Transaction costs, uncertainty, and risk

Question 15

A _____ between a parent company and the operator of a local outlet specifies each party's duties and the structure of payments that link them, and can turn the combined organization into a stronger competitor.

Accepted Answer

A) volumetric interdependence 
B) franchise contract 
C) joint venture 
D) buy-sell transaction 
A) volumetric interdependence 
B) franchise contract 
C) joint venture 
D) buy-sell transaction

Question 16

Explain why the production and milling of hot steel has a high volumetric interdependence?

Accepted Answer

The production and milling of hot steel

Question 17

The maximum price pipelines can charge for distributing gas:

Accepted Answer

A) is determined in a monopolistic market. 
B) depends on the market demand and supply. 
C) is set by the federal government. 
D) is always above the legal minimum. 
A) is determined in a monopolistic market. 
B) depends on the market demand and supply. 
C) is set by the federal government. 
D) is always above the legal minimum.

Question 18

Foreign outsourcing of service is commonly seen in economies that possess the skills and equipment required to produce those services for themselves.

Accepted Answer

A) True 
 B)False

Question 19

_____ and _____ are major factors in de-integration, which act in opposite directions.

Accepted Answer

A) Vertical restraints; opportunism 
B) Uncertainty; volumetric interdependence 
C) Asset specificity; uncertainty 
D) Volumetric interdependence; vertical restraints 
A) Vertical restraints; opportunism 
B) Uncertainty; volumetric interdependence 
C) Asset specificity; uncertainty 
D) Volumetric interdependence; vertical restraints

Question 20

The figure given below represents two monopolists James and Jerry.James produces Good A using the input Good B which is produced by Jerry and has no other variable costs.James is the only consumer of Good B, and the marginal cost incurred by Jerry to produce Good B is zero.DA and DB represent the demand curves for Good A and Good B respectively.MRA and MRB represent the marginal revenue received from Good A and Good B respectively.It takes one unit of A to produce a unit of B.

-Refer to Figure .Which of the following observations is true, assuming the two monopolists do not merge?

Accepted Answer

A) The price charged by James for his output is equal to that charged by Jerry. 
B) The profit earned by James is almost double of that earned by Jerry. 
C) The marginal cost of producing Good A is zero. 
D) The marginal revenue curve for Good A is the demand curve for Good B. 
A) The price charged by James for his output is equal to that charged by Jerry. 
B) The profit earned by James is almost double of that earned by Jerry. 
C) The marginal cost of producing Good A is zero. 
D) The marginal revenue curve for Good A is the demand curve for Good B.

In order to lessen the monitoring problems and opportunistic behavior of a franchisor and a franchisee, franchise contracts:

Which of the following transactions can be categorized as outsourcing?

The ISO 9000 family of quality management and assurance procedures improve exchangeability by lowering the cost of obtaining information about the goods to be traded and the counterparties with whom individuals might trade.

Among the different stages of red wine production (selection of grapes, crushing, fermentation, blending and fining, adding preservatives, filtration and bottling), the first stage-selection of grapes is called the downstream and the final stage-packaging/bottling is called the upstream.

Although U.S.Steel is integrated into iron ore mining, it currently does not own any of the mines that supply its coking coal because:

The invention of the Bessemer converter in 1856:

A firm chooses vertical integration to reduce all of the following costs, EXCEPT:

According to the text, which of the following developments have taken place in the American steel industry during the past 40 years?

During the peak season, when demand for pipeline transport of natural gas at the maximum legally allowable price exceeds the available capacity:

_____ increases with the variability of outcomes and the underlying degree of randomness in the environment that can affect a business relationship.

_____, uncertainty, and risk of opportunism are the three major reasons due to which U.S.Steel prefers to own its mines, enrichment facilities, and ore carriers.

Explain briefly why U.S.Steel prefers to own its mines, enrichment facilities, and ore carriers.

A _____ between a parent company and the operator of a local outlet specifies each party's duties and the structure of payments that link them, and can turn the combined organization into a stronger competitor.

Explain why the production and milling of hot steel has a high volumetric interdependence?

The maximum price pipelines can charge for distributing gas:

Foreign outsourcing of service is commonly seen in economies that possess the skills and equipment required to produce those services for themselves.

_ and _ are major factors in de-integration, which act in opposite directions.

Reasoning With Economics: Models and Information

Transactions and Institutions: the Building Blocks

Markets

Cost and Production

Extreme Markets I: Perfect Competition

Extreme Markets II: Monopoly

Between the Extremes: Interaction and Strategy

Competition and Strategy

Beyond Markets; Property and Contracts

The Economics of Contracts

Risk and Information in Contracts

Organizations in Concept and Practice

Organizational Design

Employment Relationships

Time, Risk and Options

Conflict, Negotiation and Group Choice

Filters

Exam 14: Vertical Relationships

In order to lessen the monitoring problems and opportunistic behavior of a franchisor and a franchisee, franchise contracts:

Which of the following transactions can be categorized as outsourcing?

The ISO 9000 family of quality management and assurance procedures improve exchangeability by lowering the cost of obtaining information about the goods to be traded and the counterparties with whom individuals might trade.

Among the different stages of red wine production (selection of grapes, crushing, fermentation, blending and fining, adding preservatives, filtration and bottling), the first stage-selection of grapes is called the downstream and the final stage-packaging/bottling is called the upstream.

Although U.S.Steel is integrated into iron ore mining, it currently does not own any of the mines that supply its coking coal because:

The invention of the Bessemer converter in 1856:

A firm chooses vertical integration to reduce all of the following costs, EXCEPT:

According to the text, which of the following developments have taken place in the American steel industry during the past 40 years?

During the peak season, when demand for pipeline transport of natural gas at the maximum legally allowable price exceeds the available capacity:

_____ increases with the variability of outcomes and the underlying degree of randomness in the environment that can affect a business relationship.

_____, uncertainty, and risk of opportunism are the three major reasons due to which U.S.Steel prefers to own its mines, enrichment facilities, and ore carriers.

Explain briefly why U.S.Steel prefers to own its mines, enrichment facilities, and ore carriers.

A _____ between a parent company and the operator of a local outlet specifies each party's duties and the structure of payments that link them, and can turn the combined organization into a stronger competitor.

Explain why the production and milling of hot steel has a high volumetric interdependence?

The maximum price pipelines can charge for distributing gas:

Foreign outsourcing of service is commonly seen in economies that possess the skills and equipment required to produce those services for themselves.

_____ and _____ are major factors in de-integration, which act in opposite directions.

Reasoning With Economics: Models and Information

Transactions and Institutions: the Building Blocks

Markets

Cost and Production

Extreme Markets I: Perfect Competition

Extreme Markets II: Monopoly

Between the Extremes: Interaction and Strategy

Competition and Strategy

Beyond Markets; Property and Contracts

The Economics of Contracts

Risk and Information in Contracts

Organizations in Concept and Practice

Organizational Design

Employment Relationships

Time, Risk and Options

Conflict, Negotiation and Group Choice

Filters

_ and _ are major factors in de-integration, which act in opposite directions.