1) Which of the following is an alternative to vertical integration? Horizontal
ID: 1223306 • Letter: 1
Question
1) Which of the following is an alternative to vertical integration?
Horizontal integration
Double marginalization
Business liquidation
Franchise agreement
2) A person purchasing an accident insurance policy is likely to take lesser care while driving. This is typically an example of:
the tragedy of commons.
production inefficiency.
adverse selection.
a free-rider problem.
3) To avoid problems of adverse selections and free riders, firms are more likely to go for:
a take-or-pay contract.
a conglomeration.
a horizontal integration.
a vertical integration.
4) _____ is a cost involved in making an internal or an external exchange between businesses.
Economic cost
Transaction cost
Fixed cost
Opportunity cost
5) Which of the following is common to both profit and cost centers?
Incentive to minimize cost
Revenue maximization
Reduced dependence on top-level management
Incentive to maximize profit
6) In a principal-agent problem, _____ is an agent of _____.
a borrower; a lender
the board of directors; the union if the company is unionized
a public enterprise; a private enterprise
a management executive; the shareholders
7) The justification of paying a Chief Executive Officer of a firm is that it creates additional incentives for other executives to put in extra efforts and getting similar rewards. This is explained by:
the efficiency wage hypothesis.
the tournament theory.
the principal-agent theory.
the Coase theory.
Explanation / Answer
ans 1
Horizontal integration
ans 2
adverse selection
ans 3
a take-or-pay contract
ans 4
Transaction cost
ans 5
Revenue maximization
ans 6
a management executive; the shareholders
ans 7
the tournament theory.
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