Question 1

If Luxury Cabinets, a kitchen cabinet manufacturer, builds a cabinet plant near Big Woods, a timber harvesting farm, to reduce the costs of transporting lumber, the cabinet plant is a(n)______.

Accepted Answer

A)  negotiation asset
B)  transaction- specific asset
C)  information asset
D)  monitoring cost B

Question 2

If a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost of $8 and they are paying the profit- maximizing wholesale price of $20, what is the retail price of the product?

Accepted Answer

A)  $8
B)  $28
C)  $12
D)  $20 B

Question 3

If a firm has a monopoly in both the production and distribution of a product and the managers of both the production and distribution divisions maximize profits, all of the following are true except which one?

Accepted Answer

A)  The firm will maximize its total profit.
B)  The manager of one of the divisions should be instructed to maximize profit and the manager of the other division should be instructed to operate as a perfectly competitive firm.
C)  A successive monopoly will occur within the firm.
D)  Double marginalization will occur within the firm. A

Question 4

If Slick Shades, a sunglasses manufacturer, purchases several local retail shops to sell their sunglasses, this is an example of ______.

Accepted Answer

A)  backward integration
B)  outsourcing
C)  divestiture
D)  forward integration

Question 5

If all stages of production occur within a vertically integrated firm, the firm has no taxable transactions during production.

Accepted Answer

A) True 
 B)False

Question 6

The manager of View Your World, a high- end window manufacturer, notices that the cost to purchase glass for their windows in the spot market has increased. As a result of the change, which of the following is true?

Accepted Answer

A)  The manager has less of an incentive to integrate backward.
B)  The manager has more of an incentive to integrate backward.
C)  The manager has less of an incentive to integrate forward.
D)  The manager has more of an incentive to integrate forward.

Question 7

In a successive monopoly structure, if distributor has a constant marginal cost of $5 and is paying the producer $12 per unit, which is the profit- maximizing wholesale price, what is the distributor's marginal revenue at this output level?

Accepted Answer

A)  $7
B)  $5
C)  $12
D)  $17

Question 8

The wholesale demand for a monopoly retailer depends of the retailer's marginal revenue.

Accepted Answer

A) True 
 B)False

Question 9

If a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost of $3 and they are charging the profit- maximizing retail price of $9, what is wholesale price of the product?

Accepted Answer

A)  $9
B)  $6
C)  $12
D)  $3

Question 10

If a firm has a monopoly in both the production and distribution, managers of the two divisions should be encouraged to maximize profits in their separate divisions.

Accepted Answer

A) True 
 B)False

Question 11

If Big Dogs, a hot dog producer, purchases delivery trucks to deliver their hot dogs to local grocery stores, this is an example of ______.

Accepted Answer

A)  forward integration
B)  backward integration
C)  outsourcing
D)  divestiture

Question 12

If High Tech, a computer manufacturer, has a contract with Big Chips, a computer chip manufacturer, to produce the computer chips needed for High Tech's computers, this is an example of _______.

Accepted Answer

A)  forward integration
B)  outsourcing
C)  backward integration
D)  divestiture

Question 13

If View Your World, a high- end window manufacturer, has contracted with local carpenters to install their windows in residential homes, this is an example of______ .

Accepted Answer

A)  outsourcing
B)  a market transaction
C)  forward integration
D)  backward integration

Question 14

Vertical integration can eliminate double marginalization.

Accepted Answer

A) True 
 B)False

Question 15

If the managers of View Your World, a high- end window manufacturer, spend considerable time researching different prices and quality measures offered by multiple glass firms, the time spent is considered to be a(n)______cost.

Accepted Answer

A)  enforcement
B)  negotiation
C)  monitoring
D)  information

Question 16

Vertical integration can lower firms' costs through each of the following except which one?

Accepted Answer

A)  reducing information costs
B)  increasing the required areas of managerial expertise
C)  creating synergies
D)  increasing flexibility by eliminating a contract with an input supplier

Question 17

The bottom of the supply chain contains______ and is referred to as the____________ end of the chain.

Accepted Answer

A)  finished goods; downstream
B)  finished goods; upstream
C)  raw materials; upstream
D)  raw materials; downstream

Question 18

A transaction cost is the cost of using a market plus the price of the good or service.

Accepted Answer

A) True 
 B)False

Question 19

If an upstream firm and a downstream firm have a long- term contract regarding the price of an input, a change in the market price of the input can result in either the upstream or downstream firm to incur opportunity cost.

Accepted Answer

A) True 
 B)False

Question 20

The manager of Steel Works learns of a new technological interdependency between the first stage and the intermediate stage of production. If Steel Works currently contracts with another firm for the intermediate stage of production, which of the following is true?

Accepted Answer

A)  The manager has less of an incentive to integrate backward.
B)  The manager has more of an incentive to integrate forward.
C)  The manager has less of an incentive to integrate forward.
D)  The manager has more of an incentive to integrate backward.

Exam 11: Decisions About Vertical Integration and Distribution

If Luxury Cabinets, a kitchen cabinet manufacturer, builds a cabinet plant near Big Woods, a timber harvesting farm, to reduce the costs of transporting lumber, the cabinet plant is a(n) ______.

If a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost of $8 and they are paying the profit- maximizing wholesale price of $20, what is the retail price of the product?

If a firm has a monopoly in both the production and distribution of a product and the managers of both the production and distribution divisions maximize profits, all of the following are true except which one?

If Slick Shades, a sunglasses manufacturer, purchases several local retail shops to sell their sunglasses, this is an example of ______.

If all stages of production occur within a vertically integrated firm, the firm has no taxable transactions during production.

The manager of View Your World, a high- end window manufacturer, notices that the cost to purchase glass for their windows in the spot market has increased. As a result of the change, which of the following is true?

In a successive monopoly structure, if distributor has a constant marginal cost of $5 and is paying the producer $12 per unit, which is the profit- maximizing wholesale price, what is the distributor's marginal revenue at this output level?

The wholesale demand for a monopoly retailer depends of the retailer's marginal revenue.

If a monopoly firm sells to competitive distributors and the distributors have a constant marginal cost of $3 and they are charging the profit- maximizing retail price of $9, what is wholesale price of the product?

If a firm has a monopoly in both the production and distribution, managers of the two divisions should be encouraged to maximize profits in their separate divisions.

If Big Dogs, a hot dog producer, purchases delivery trucks to deliver their hot dogs to local grocery stores, this is an example of ______.

If High Tech, a computer manufacturer, has a contract with Big Chips, a computer chip manufacturer, to produce the computer chips needed for High Tech's computers, this is an example of _______.

If View Your World, a high- end window manufacturer, has contracted with local carpenters to install their windows in residential homes, this is an example of______ .

Vertical integration can eliminate double marginalization.

If the managers of View Your World, a high- end window manufacturer, spend considerable time researching different prices and quality measures offered by multiple glass firms, the time spent is considered to be a(n) ______cost.

Vertical integration can lower firms' costs through each of the following except which one?

The bottom of the supply chain contains and is referred to as the______ end of the chain.

A transaction cost is the cost of using a market plus the price of the good or service.

If an upstream firm and a downstream firm have a long- term contract regarding the price of an input, a change in the market price of the input can result in either the upstream or downstream firm to incur opportunity cost.

The manager of Steel Works learns of a new technological interdependency between the first stage and the intermediate stage of production. If Steel Works currently contracts with another firm for the intermediate stage of production, which of the following is true?