WPC 480 Chae Final Questions With
Complete Solutions
What is Vertical integration? Process where several steps in production are controlled and
owned by a single company
Forward Integration ex) pepsi concentrate controls bottlers
Backwards integration ex) manufacturer controls design process/area
Transaction Costs costs associated with economic change
Internal vs external
employees pay, benefit, office space vs. contract, supervising performance, negotiating
Opportunism Willingly taking adv of others (dishonesty)
threat of opp. is highest when paired with asset specificity problem
, WPC 480 Chae Final Questions With
Complete Solutions
Asset specificity Unique assets with high opportunity cost,
most value in first use than next best use.
Should a firm make or buy? C in house < C market= vertical integrate
Make > Buy =vertical integrate, no = outsource
Which is an example of internal trans. cost?
a. pertaining to setting up a floor
b. searching for suitable manufacturer
c. negotiating prices with business consultant
d. outsourcing papyroll maintenance
e. backward vertical integration A
T/F Threat of opportunism is the least when a party to an exchange has made transaction-specific
investments F
, WPC 480 Chae Final Questions With
Complete Solutions
T/F Flexibility is most valuable when the decision-making setting faced by a firm is uncertain.
T
T/F When depending largely on an input that is valueable, rare and costly to imitate, it is optimal
to carry out the exchange on the open market F
T/F MAKE> BUY = vertically integrate T
Levels of strategy 1. Corporate (where to compete)
2. Business (how to compete)
3. Functional (how to execute)
Diversification Range of products and service a firm should offer
Types of diversification -Single business. 95, A
-Dominant business. 70-95, AB
-Related constrained. <70 ABC
Complete Solutions
What is Vertical integration? Process where several steps in production are controlled and
owned by a single company
Forward Integration ex) pepsi concentrate controls bottlers
Backwards integration ex) manufacturer controls design process/area
Transaction Costs costs associated with economic change
Internal vs external
employees pay, benefit, office space vs. contract, supervising performance, negotiating
Opportunism Willingly taking adv of others (dishonesty)
threat of opp. is highest when paired with asset specificity problem
, WPC 480 Chae Final Questions With
Complete Solutions
Asset specificity Unique assets with high opportunity cost,
most value in first use than next best use.
Should a firm make or buy? C in house < C market= vertical integrate
Make > Buy =vertical integrate, no = outsource
Which is an example of internal trans. cost?
a. pertaining to setting up a floor
b. searching for suitable manufacturer
c. negotiating prices with business consultant
d. outsourcing papyroll maintenance
e. backward vertical integration A
T/F Threat of opportunism is the least when a party to an exchange has made transaction-specific
investments F
, WPC 480 Chae Final Questions With
Complete Solutions
T/F Flexibility is most valuable when the decision-making setting faced by a firm is uncertain.
T
T/F When depending largely on an input that is valueable, rare and costly to imitate, it is optimal
to carry out the exchange on the open market F
T/F MAKE> BUY = vertically integrate T
Levels of strategy 1. Corporate (where to compete)
2. Business (how to compete)
3. Functional (how to execute)
Diversification Range of products and service a firm should offer
Types of diversification -Single business. 95, A
-Dominant business. 70-95, AB
-Related constrained. <70 ABC
