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08 Jun 2022, 07:30
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Question 1
C
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
55%
(hard)
Question Stats:
55% (02:47) correct
45%
(03:13) wrong
based on 255
sessions
History
Date
Time
Result
Not Attempted Yet
Question 2
C
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
5%
(low)
Question Stats:
92% (00:36) correct 8%
(00:52) wrong
based on 273
sessions
History
Date
Time
Result
Not Attempted Yet
Question 3
A
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
5%
(low)
Question Stats:
84% (00:42) correct 16%
(00:56) wrong
based on 275
sessions
History
Date
Time
Result
Not Attempted Yet
Question 4
D
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
35%
(medium)
Question Stats:
67% (01:12) correct 33%
(01:18) wrong
based on 265
sessions
History
Date
Time
Result
Not Attempted Yet
In a large number of cases the incentive for the acquisition or merger of competitive enterprises producing similar products was to gain more effective control of output, price, and markets. Such horizontal combination increased organizational capabilities only if a single, centralized administrative control was quickly established over the acquired companies and then the facilities and personnel were rationalized to exploit more fully the economies of scale and scope. But if the companies acquired or those coming into the merger were not administratively centralized but instead operated autonomously as they had before the change, the enlarged enterprise remained little more than a federation of firms. The resulting cost advantages were minimal.
The reasons for vertical integration — growth through obtaining facilities along the chain of production — were more complex. Faster ‘through-put’, and with it significant cost reductions and increased productivity in terms of worker output or unit of equipment, rarely resulted from vertical integration unless the additional processes were directed to the firm's existing ones by its own rails, conveyors, or pipes. Such integration was particularly successful in the production of chemicals, metals, and machinery. Where the facilities to make related processes were located at a distance, increased ‘through-put’ was less feasible.
The motive for such investments in growth by vertical integration was primarily defensive, but not in the same way as through horizontal combination. Sometimes the aim was to withhold supplies from competitors and so create barriers to entry. Far more often, however, the motive for such vertical integration was to assure a steady supply of materials into the enterprise's production, which was essential if the cost advantages of scale and scope were to be maintained. It provided insurance against cost increases from fluctuating production. It reduced the cost of inventory storage and other carrying costs. It lowered the risk that suppliers would fail to carry out contractual agreements — risks economists have termed 'bounded rationality' (human fallibility) and 'opportunism' (self interest with guile). The greater the investment in capital-intensive facilities and the greater the optimal size of these facilities, the greater the incentive for insurance against such transaction costs. Thus, the more concentrated the facilities of production and supply, the more likely the integration of the two within a single enterprise.
The reasons for vertical integration — growth through obtaining facilities along the chain of production — were more complex. Faster ‘through-put’, and with it significant cost reductions and increased productivity in terms of worker output or unit of equipment, rarely resulted from vertical integration unless the additional processes were directed to the firm's existing ones by its own rails, conveyors, or pipes. Such integration was particularly successful in the production of chemicals, metals, and machinery. Where the facilities to make related processes were located at a distance, increased ‘through-put’ was less feasible.
The motive for such investments in growth by vertical integration was primarily defensive, but not in the same way as through horizontal combination. Sometimes the aim was to withhold supplies from competitors and so create barriers to entry. Far more often, however, the motive for such vertical integration was to assure a steady supply of materials into the enterprise's production, which was essential if the cost advantages of scale and scope were to be maintained. It provided insurance against cost increases from fluctuating production. It reduced the cost of inventory storage and other carrying costs. It lowered the risk that suppliers would fail to carry out contractual agreements — risks economists have termed 'bounded rationality' (human fallibility) and 'opportunism' (self interest with guile). The greater the investment in capital-intensive facilities and the greater the optimal size of these facilities, the greater the incentive for insurance against such transaction costs. Thus, the more concentrated the facilities of production and supply, the more likely the integration of the two within a single enterprise.
1. Vertical integration is associated with control of the chain of production; horizontal combination is associated with control of:
A. investment
B. cost advantage
C. administration
D. increased output
E. insurance against great cost increases
A. investment
B. cost advantage
C. administration
D. increased output
E. insurance against great cost increases
2. What is the more frequent motive for vertical integration?
A. to expand market presence across many industries
B. to establish administrative control over acquired companies
C. to assure a steady supply of materials into production processes
D. to federate acquired firms
E. to increase organizational capabilities
A. to expand market presence across many industries
B. to establish administrative control over acquired companies
C. to assure a steady supply of materials into production processes
D. to federate acquired firms
E. to increase organizational capabilities
3. Which of the following is the primary purpose of the passage?
A. To analyze reasons for and effects of vertical integration and horizontal combination.
B. To analyze cost reductions and increased productivity as incentives in mergers.
C. To analyze feasibility of increased output
D. To analyze defensive motive for investment in growth
E. To analyze bounded fallibility and opportunism.
A. To analyze reasons for and effects of vertical integration and horizontal combination.
B. To analyze cost reductions and increased productivity as incentives in mergers.
C. To analyze feasibility of increased output
D. To analyze defensive motive for investment in growth
E. To analyze bounded fallibility and opportunism.
4. According to the passage, economists and organizational theorists identify which of the following risky behaviors?
A. vertical integration and horizontal combination
B. administrative centralization and rationalization
C. fluctuating production and shutdown
D. bounded rationality and opportunism
E. withholding supplies from competitors and creating barriers to entry in the industry
A. vertical integration and horizontal combination
B. administrative centralization and rationalization
C. fluctuating production and shutdown
D. bounded rationality and opportunism
E. withholding supplies from competitors and creating barriers to entry in the industry
08 Jan 2026, 05:52
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Quote:
The passage distinguishes between two types of corporate growth: horizontal combination (merging similar firms) and vertical integration (controlling successive production stages). It explains that horizontal combination only yields cost advantages if centralized administration rationalizes operations. Vertical integration is primarily motivated by defensive needs to ensure a steady material supply and reduce risks like bounded rationality and opportunism, especially in capital-intensive industries.
1. Vertical integration is associated with control of the chain of production; horizontal combination is associated with control of:
A. investment
B. cost advantage
C. administration
D. increased output
E. insurance against great cost increases
The passage states that effective horizontal combination requires establishing "a single, centralized administrative control" over acquired companies to rationalize facilities and personnel. This directly links horizontal combination with administrative control.
Answer: C
2. What is the more frequent motive for vertical integration?
A. to expand market presence across many industries
B. to establish administrative control over acquired companies
C. to assure a steady supply of materials into production processes
D. to federate acquired firms
E. to increase organizational capabilities
The passage explicitly states: "Far more often, however, the motive for such vertical integration was to assure a steady supply of materials into the enterprise's production..."
Answer: C
3. Which of the following is the primary purpose of the passage?
A. To analyze reasons for and effects of vertical integration and horizontal combination.
B. To analyze cost reductions and increased productivity as incentives in mergers.
C. To analyze feasibility of increased output
D. To analyze defensive motive for investment in growth
E. To analyze bounded fallibility and opportunism.
The passage is structured to compare and contrast the reasons (motives) and outcomes (effects) of both horizontal combination and vertical integration, making this the primary purpose.
Answer: A
4. According to the passage, economists and organizational theorists identify which of the following risky behaviors?
A. vertical integration and horizontal combination
B. administrative centralization and rationalization
C. fluctuating production and shutdown
D. bounded rationality and opportunism
E. withholding supplies from competitors and creating barriers to entry in the industry
The passage lists risks that vertical integration helps mitigate, specifically naming: "risks economists have termed 'bounded rationality' (human fallibility) and 'opportunism' (self interest with guile)."
Answer: D
12 Jan 2026, 11:03
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How do we reject D in Q1? I think it is also correct
In a large number of cases the incentive for the acquisition or merger of competitive enterprises producing similar products was to gain more effective control of "output", price, and markets.
In a large number of cases the incentive for the acquisition or merger of competitive enterprises producing similar products was to gain more effective control of "output", price, and markets.
