Question 1

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

Accepted Answer

Vertical integration may increase the required areas of managerial expertise, which could lead to higher costs due to more complex management structures and additional training needs. The other options - reducing information costs, creating synergies, and increasing flexibility by eliminating a contract with an input supplier - are all potential benefits of vertical integration that could lead to lower costs for the firm.

Question 2

A tax inversion merger _______ legally reduce the combined firms' taxes and these mergers ______.
A)cannot; are only vertical mergers
B)can; can be horizontal or vertical mergers
C)can; are only horizontal mergers
D)cannot; can be horizontal or vertical mergers

Accepted Answer

Tax inversion mergers can legally reduce the combined firms' taxes and can be either horizontal or vertical mergers.

Question 3

Firms that set their transfer prices equal to the price charged to an independent customer violate laws in many nations.

Accepted Answer

Firms that set their transfer prices equal to the price charged to an independent customer do not necessarily violate laws in many nations, although they may be subject to scrutiny and potential adjustment by tax authorities if the prices are not deemed to be arm's length. However, there are some nations where such behavior is explicitly prohibited by law, such as China.

Question 4

If a merger allows managers to reduce duplicate operations, the merger ______.
A)eliminated the hold- up problem
B)created synergies
C)created managerial diseconomies
D)created technological interdependencies

Accepted Answer

When managers reduce duplicate operations, they can create synergies, which means the resulting company can be more profitable or efficient than the two individual companies were separately. The other choices do not match the given description of reducing duplicate operations.

Question 5

If the managers of Happy Avocados, a ready- made guacamole firm, spend considerable time researching different prices and quality measures offered by multiple avocado farmers, the time spent is considered to be a(n)______cost.
A)monitoring
B)enforcement
C)information
D)negotiation

Accepted Answer

The cost that is incurred by Happy Avocados when researching different prices and quality measures offered by multiple avocado farmers is considered to be an information cost. The managers are investing their time and effort into gathering the necessary information to make informed decisions about which farmer to select. This cost is not related to monitoring, enforcement, or negotiation.

Question 6

All of the following are true regarding transfer prices except which one?
A)The transfer price is the internal firm price on an input that input- producing division charges the input- using division.
B)The transfer price is the internal firm price on an input that input- using division charges the input- producing division.
C)Law in many nations state that a transfer price must equal the price charged to an independent customer.
D)Transfer prices can affect the taxes a firm must pay.

Accepted Answer

Transfer prices are set by the input-producing division for the sale of its products or services to the input-using division within the same company, not the other way around as stated in option B.

Question 7

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

Accepted Answer

A transaction cost refers to the expenses incurred in making an economic exchange (such as bargaining costs, search and information costs, legal costs, etc.), separate from the price of the good or service itself.

Question 8

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

Accepted Answer

The time spent researching prices and quality measures offered by multiple glass firms is considered informational cost.

Question 9

If Slick Shades, a sunglasses manufacturer, merges with Best Lens, a lens manufacturer, and the combined firm is able to reduce the number of human resource departments from two to one, the merger created _ _______.
A)technological interdependencies
B)synergies
C)a hold- up problem
D)managerial diseconomies

Accepted Answer

The reduction in the number of human resource departments indicates that the merger has generated cost savings and improved efficiency. This is an example of synergy, where the combined firm is able to achieve more together than separately. Technological interdependencies refer to the interrelationships between different technologies or processes, while a hold-up problem and managerial diseconomies are not relevant to this scenario.

Question 10

If Slick Shades, a sunglasses manufacturer, has a contract with Best Lens, a lens manufacturer, to supply lenses needed to make the sunglasses, and the managers of the two firms both paid lawyers' fees to prepare the contract, the lawyer fees are considered to be a(n)______cost.
A)information
B)negotiation
C)monitoring
D)enforcement

Accepted Answer

The lawyers' fees paid to prepare the contract between Slick Shades and Best Lens are considered a negotiation cost because they were incurred during the process of reaching an agreement between the two firms. These costs are typically associated with haggling over the terms of the contract and finalizing its details.

Question 11

If a German firm owns a U.S.- based firm, the combined firm is subject to the corporate tax laws in Germany.

Accepted Answer

The answer of If a German firm owns a U.S.-...

Question 12

If a German firm owns a U.S.- based firm that is domiciled in the U.S., the combined firm is subject to the corporate tax laws in _______ and income tax laws in _______.
A)U.S.; U.S.
B)Germany; U.S.
C)U.S.; Germany
D)Germany; Germany

Accepted Answer

The answer of If a German firm owns a U.S.-...

Question 13

Vertical integration can lower firms' costs through each of the following except which one?
A)lowering transaction costs
B)accommodating technological interdependencies
C)creating synergies
D)creating managerial diseconomies

Accepted Answer

Vertical integration can lower firms' costs through lowering transaction costs, accommodating technological interdependencies, and creating synergies by integrating different stages of production. However, it may create managerial diseconomies by increasing the complexity of management and decision-making.

Question 14

Vertical integration can only occur when a firm acquires a firm that is closer to the consumer.

Accepted Answer

Vertical integration can occur at any point in the supply chain, whether it's upstream (towards suppliers) or downstream (towards customers). It involves a company purchasing or merging with another company in the same industry but at a different stage of the production process.

Question 15

Vertical integration can lower firms' costs through each of the following except which one?
A)increasing the complexity of coordination
B)eliminating the hold- up problem
C)reducing information costs
D)creating synergies

Accepted Answer

Vertical integration involves combining multiple stages of production or distribution within a single company. This will help to eliminate the hold-up problem, reduce information costs, and create synergies. However, it may increase the complexity of coordination between different stages, which could lead to higher costs. Therefore, option A is the correct choice.

Question 16

If Slick Shades, a sunglasses manufacturer, merges with Best Lens, a lens manufacturer, and the combined firm is able to reduce the number of accounting departments from two to one, the merger created ________.
A)synergies
B)a hold- up problem
C)managerial diseconomies
D)technological interdependencies

Accepted Answer

The reduction in the number of accounting departments indicates that the combined firm is able to achieve cost savings or efficiencies that neither firm could achieve on its own, which is a synergy.

Question 17

All of the following are true regarding transfer prices except which one?
A)Transfer prices occur when a firm engages in divestiture.
B)The transfer price is the internal firm price on an input that input- producing division charges the input- using division.
C)Transfer prices can affect the taxes a firm must pay.
D)Transfer prices are an accounting entry for the within- firm price of an input.

Accepted Answer

Transfer prices are not limited to divestiture situations. They are used whenever one division of a company sells goods or services to another division within the same company.

Question 18

If Happy Cows, a dairy firm, merges with Best Cartons, a manufacturer of dairy cartons, and the combined firm is able to reduce the number of executive managers, the merger created______ .
A)managerial diseconomies
B)technological interdependencies
C)a hold- up problem
D)synergies

Accepted Answer

When Happy Cows and Best Cartons merge and reduce the number of executive managers, the merger creates synergies. Synergies occur when two firms combine, and the whole is greater than the sum of its parts. In this case, the two firms can now work together more efficiently and effectively, resulting in cost savings and increased profits. By reducing management positions, the combined firm can also benefit from economies of scale, further increasing productivity and profitability.

Question 19

If a firm produces at more than one stage of the supply chain, the firm is vertically integrated.

Accepted Answer

Vertical integration refers to a company owning and operating multiple stages of the supply chain, from raw materials to finished product. Therefore, if a firm produces at more than one stage of the supply chain, it is considered vertically integrated.

Question 20

If View Your World, a high- end window manufacturer, sells its glass door division, this is an example of ______.
A)forward integration
B)outsourcing
C)divestiture
D)backward integration

Accepted Answer

Divestiture refers to the process of selling or disposing of a business segment or division. In this scenario, View Your World is selling its glass door division, which falls under the category of divestiture. Therefore, the best choice is C. The rest of the choices are not applicable as forward integration involves acquiring a business that is closer to the end customer, outsourcing involves contracting work to an external company or service provider, and backward integration involves acquiring a supplier.

Quiz 11: Decisions About Vertical Integration and Distribution

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

A tax inversion merger _ legally reduce the combined firms' taxes and these mergers .

Firms that set their transfer prices equal to the price charged to an independent customer violate laws in many nations.

If a merger allows managers to reduce duplicate operations, the merger ______.

If the managers of Happy Avocados, a ready- made guacamole firm, spend considerable time researching different prices and quality measures offered by multiple avocado farmers, the time spent is considered to be a(n) ______cost.

All of the following are true regarding transfer prices except which one?

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

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.

If Slick Shades, a sunglasses manufacturer, merges with Best Lens, a lens manufacturer, and the combined firm is able to reduce the number of human resource departments from two to one, the merger created _ _______.

If Slick Shades, a sunglasses manufacturer, has a contract with Best Lens, a lens manufacturer, to supply lenses needed to make the sunglasses, and the managers of the two firms both paid lawyers' fees to prepare the contract, the lawyer fees are considered to be a(n) ______cost.

If a German firm owns a U.S.- based firm, the combined firm is subject to the corporate tax laws in Germany.

If a German firm owns a U.S.- based firm that is domiciled in the U.S., the combined firm is subject to the corporate tax laws in _ and income tax laws in _.

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

Vertical integration can only occur when a firm acquires a firm that is closer to the consumer.

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

If Slick Shades, a sunglasses manufacturer, merges with Best Lens, a lens manufacturer, and the combined firm is able to reduce the number of accounting departments from two to one, the merger created ________.

All of the following are true regarding transfer prices except which one?

If Happy Cows, a dairy firm, merges with Best Cartons, a manufacturer of dairy cartons, and the combined firm is able to reduce the number of executive managers, the merger created______ .

If a firm produces at more than one stage of the supply chain, the firm is vertically integrated.

If View Your World, a high- end window manufacturer, sells its glass door division, this is an example of ______.