Answer the following statements true (T) or false (F)
1) Vertical integration can only occur when a firm acquires a firm that is closer to the consumer.
2) A transaction cost is the cost of using a market plus the price of the good or service.
3) If a firm produces at more than one stage of the supply chain, the firm is vertically integrated.
4) Firms that set their transfer prices equal to the price charged to an independent customer violate laws in many nations.
5) If a German firm owns a U.S.-based firm, the combined firm is subject to the corporate tax laws in Germany.
1) FALSE
2) FALSE
3) TRUE
4) FALSE
5) TRUE
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Private markets tend to undersupply nonexcludable goods because of
a. individuals' incentives to be untruthful. b. overcrowding. c. free riding. d. dissipated rents.
Good Boy Super Treats produces healthy treats for dogs. At its current advertising level, Good Boy Super Treats marginal cost of advertising is $1 million and their marginal benefit is $1.2 million. Which of the following is true?
A) The firm should reduce the amount of advertising to increase its net profit. B) The firm is currently maximizing its net profit. C) If the firm increases the amount of advertising, its net profits will decrease. D) The firm should increase the amount of advertising to increase its net profit.
Incompleteness of a contract can be considered boundedly rational if at the time the parties draft the agreement they do not know how they can best react to certain contingencies
Indicate whether the statement is true or false
Greg's Tasty Ice Cream is considering building a new ice cream factory that costs $8.3 million. The company accountants believe that, not accounting for interest costs, building the factory will increase profits by $5 million the first year, $4 million the second year and have no value thereafter. Greg's Tasty Ice Cream should build the factory if the interest rate is
a. 3% but not if it is 4%. b. 4% but not if it is 5%. c. 5% but not if it is 6%. d. 6% but not if it is 7%.