Final answer:
A firm practices vertical integration when it produces the inputs necessary for its final product. This strategy involves extending company operations within different steps of the same production path, helping reduce costs and increase control over the production process. Hence, option (C) is correct.
Step-by-step explanation:
When a firm produces the inputs it needs to make the final product, it practices vertical integration. This is a business strategy where a company extends its operations into different steps on the same production path, such as when a manufacturer owns its supplier and/or distributor.
Vertical integration can help companies reduce costs and improve efficiencies by decreasing transportation expenses, reducing turnaround time, and giving the firm greater control over the production process. It is contrasted with horizontal integration, where a company buys out or merges with its competitors instead of its suppliers or distributors.
A historical example of vertical integration is the approach Henry Ford took with Ford Motor Company, internalizing the production of many components used in the manufacturing of his vehicles.