Question

A potato chip manufacturer purchases a potato farm. Which of the following regarding its strategy is true? Select one: A. The manufacturer has effectively reduced its operating costs by outsourcing its activities. B. The manufacturer has sacrificed quality by using a lower-cost input. C. The manufacturer has efficiently capitalized on the experience and learning-curve effects within the company. D. The manufacturer has effectively used vertical integration to increase its bargaining position and reduce transaction costs. E. The manufacturer has enhanced utilization by allowing depreciation and other fixed costs to be spread over a larger unit volume.

Answer 1

The correct answer is the option D: The manufacturer has effectively used vertical integration to increase its bargaining position and reduce transaction costs.

Step-by-step explanation:

To begin with, when the company decided to buy a potato's farm it has successfully engaged into vertigal integration due to the fact that now they owned a business that is in a lower position than them with the purpose to embrace more of the industry thanks to the fact that now they have the most important resource secure for the production and that is why that they will no longer need to go to another farm. Moreover, with that action they will obviously reduce its transaction costs because now they owned the business who gaves them their primary commodity.