Vertical Boundaries

Question 1

definition of vertical boundaries

Answer 1

determine how many inputs tp produce in house and how many inputs to purchases from outside input suppliers.

Question 2

reasons for firm becoming vertically integrated

Answer 2

hold-up problem
contract costs
asset specifcity

Question 3

reasons for buying input from other firms

Answer 3

agency costs
influence costs
lower production cost of outside suppliers due to economies of scale.

Question 4

technical efficiency

Answer 4

indicates whether a firm is using least-cost production process

Question 5

agency efficency

Answer 5

extent to which transaction costs are minimised in vertical chain

Question 6

make-or-buy decsiion

Answer 6

whether a final goods producer wants to produce in-hoise or purchase inputs from an outside input supplier

Question 7

make and buy strategy

Answer 7

when final goods producers produces some input in-house and purchases remaining from external input supplier

Question 8

benefits of make and buy stategy

Answer 8

-reduce hold up rpoblem
information
motivation for in house production to do well
if more inputs are required, easier to expand production in-house.

Question 9

costs of make and buy stategy

Answer 9

• sacrificng some economies of scale
• cooridnation and monitoring difficukt
• excess in-house capaicty which is a waste in a normal business condition.