Industrial Organization: Firm Size Limits

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Vertical integration results in reducing transaction costs, ensuring efficient adaptation, and improving incentives for investment.

True

All production is carried out in one big firm due to the perfect contract enforcement that eliminates the holdup problem.

False

Professional managers always prioritize profit maximization over their own utility maximization.

False

The separation of ownership and control in firms implies that profit maximization is always the primary objective of the firm.

False Signup and view all the answers

Internal factors that limit managers from pursuing their own interests include monitoring and the use of incentive contracts.

True Signup and view all the answers

Competition in the product market is an external factor that constrains managers from shirking their responsibilities.

True Signup and view all the answers

Outsourcing refers to firms carrying out activities internally rather than purchasing services or output externally.

False Signup and view all the answers

Vertical integration means that different production stages are organized within separate firms.

False Signup and view all the answers

In markets with few firms or differentiated products, firms are usually price takers according to the perfectly competitive model.

False Signup and view all the answers

Firms engaging in non-price competition may focus on aspects like product quality, advertising, and R&D investments.

True Signup and view all the answers

Market structures with differentiated products may lead to firms having the freedom to set prices independently.

True Signup and view all the answers

The de facto standardization on VHS format over Beta technology was an example of price competition dominance.

False Signup and view all the answers

In address models, firms compete over both price and quality of their products.

False Signup and view all the answers

Address models assume that consumers' preferences are not based on specific product attributes.

False Signup and view all the answers

The efficient location of products in an address model minimizes transportation costs only.

False Signup and view all the answers

If transportation costs are relatively large, the market tends to provide a greater variety of brands.

False Signup and view all the answers

The principle of minimum differentiation in address models implies that firms aim to produce highly distinct products.

False Signup and view all the answers

In address models, entrants have access to larger markets compared to incumbents.

False Signup and view all the answers

Industrial Organization: Firm Size Limits

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Questions and Answers

Vertical integration results in reducing transaction costs, ensuring efficient adaptation, and improving incentives for investment.

All production is carried out in one big firm due to the perfect contract enforcement that eliminates the holdup problem.

Professional managers always prioritize profit maximization over their own utility maximization.

The separation of ownership and control in firms implies that profit maximization is always the primary objective of the firm.

Internal factors that limit managers from pursuing their own interests include monitoring and the use of incentive contracts.

Competition in the product market is an external factor that constrains managers from shirking their responsibilities.

Outsourcing refers to firms carrying out activities internally rather than purchasing services or output externally.

Vertical integration means that different production stages are organized within separate firms.

In markets with few firms or differentiated products, firms are usually price takers according to the perfectly competitive model.

Firms engaging in non-price competition may focus on aspects like product quality, advertising, and R&D investments.

Market structures with differentiated products may lead to firms having the freedom to set prices independently.

The de facto standardization on VHS format over Beta technology was an example of price competition dominance.

In address models, firms compete over both price and quality of their products.

Address models assume that consumers' preferences are not based on specific product attributes.

The efficient location of products in an address model minimizes transportation costs only.

If transportation costs are relatively large, the market tends to provide a greater variety of brands.

The principle of minimum differentiation in address models implies that firms aim to produce highly distinct products.

In address models, entrants have access to larger markets compared to incumbents.

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