KU BE 301 EXAM 3 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
economies of scale
Answer:
your per unit cost goes down as you produce more
Question:
Market power
Answer:
the ability to jack up the price and shaft the customer
Question:
Economies of scope
Answer:
it is cheaper for one firm to produce two separate products than it is for two
separate firms to produce the same two products
Question:
Vertical boundaries of a firm
Answer:
how much of the production process takes place within the firm vs outside the
firm
Question:
Transaction costs
Answer:
costs of using the market
Question:
three categories of transaction costs
Answer:
1. search and information costs
2. bargaining and contracting costs
3. policing and enforcement costs
Question:
Why would it be cheaper to use the market? (4 reasons)
Answer:
1. economies of scale
2. economies of scope
3. efficiency because of competition among suppliers
4. if transaction costs are low
Question:
asset specificity
Answer:
the degree to which investments made for a particular transaction cannot be
, used for other purposes
Question:
why would an asset be of value to one firm?
Answer:
when you equipment has asset specificity you want to make the input not buy
it
Question:
Hold up
Answer:
holding up the production process because supplier wants more money; want
them to all be apart of the same firm
Question:
4 types of asset specificity
Answer:
1. geographic or site
2. physical asset
3. dedicated assets
4. human asset specificity
Question:
Geographic or site asset specificity
Answer:
located side by side to economize on transportation costs or inventory costs or
take advantage of processing efficiencies
- the location gives it the value
Question:
Physical asset specificity
Answer:
physical or engineering properties of the asset are specifically tailored to a
transaction
Question:
Dedicated assets
Answer:
investment made to satisfy a particular buyer
Question:
human asset specificity
Answer:
accumulation of knowledge and expertise that are specific to one trading
partner
Question:
What are vertical boundaries affected by?
Answer:
asset specificity and market conditions
Question:
When does it make sense to vertically integrate?
CORRECT ANSWERS
Question:
economies of scale
Answer:
your per unit cost goes down as you produce more
Question:
Market power
Answer:
the ability to jack up the price and shaft the customer
Question:
Economies of scope
Answer:
it is cheaper for one firm to produce two separate products than it is for two
separate firms to produce the same two products
Question:
Vertical boundaries of a firm
Answer:
how much of the production process takes place within the firm vs outside the
firm
Question:
Transaction costs
Answer:
costs of using the market
Question:
three categories of transaction costs
Answer:
1. search and information costs
2. bargaining and contracting costs
3. policing and enforcement costs
Question:
Why would it be cheaper to use the market? (4 reasons)
Answer:
1. economies of scale
2. economies of scope
3. efficiency because of competition among suppliers
4. if transaction costs are low
Question:
asset specificity
Answer:
the degree to which investments made for a particular transaction cannot be
, used for other purposes
Question:
why would an asset be of value to one firm?
Answer:
when you equipment has asset specificity you want to make the input not buy
it
Question:
Hold up
Answer:
holding up the production process because supplier wants more money; want
them to all be apart of the same firm
Question:
4 types of asset specificity
Answer:
1. geographic or site
2. physical asset
3. dedicated assets
4. human asset specificity
Question:
Geographic or site asset specificity
Answer:
located side by side to economize on transportation costs or inventory costs or
take advantage of processing efficiencies
- the location gives it the value
Question:
Physical asset specificity
Answer:
physical or engineering properties of the asset are specifically tailored to a
transaction
Question:
Dedicated assets
Answer:
investment made to satisfy a particular buyer
Question:
human asset specificity
Answer:
accumulation of knowledge and expertise that are specific to one trading
partner
Question:
What are vertical boundaries affected by?
Answer:
asset specificity and market conditions
Question:
When does it make sense to vertically integrate?
