Question

A firm that backward vertically integrates Question 6 options: A) has to merge with another firm. B) requires that the production process be relatively simple. C) moves downstream in the production process. D) may be producing its own inputs.

Answer 1

(D) may be producing its own inputs

Step-by-step explanation:

Backward and vertical integration entails a company making the raw materials required for its production (backward integration) and getting involved in a process that is not the same as the stage of production it is involved in, but related in that it is the previous production stage for the commodity that is the ultimate output of the production process of the commodity.

Thus a firm that backward vertically integrates may be producing its own inputs.

Option A is incorrect as the firm may not merge with another firm. It may set up subsidiaries to achieve the backward vertical integration. Option B is incorrect as the production process may not be simple. Option C is incorrect as incorrect as a firm that backward vertically integrates will move upstream (close to the natural resource) not downstream (closer to the final output).