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1 BUSINESS AND INDUSTRIAL ECONOMICS [A-L] July 9th, 2015 - Simulation SURNAME AND NAME________________________________________________________________ __________ STUDENT ID____________________________________________________________________________________ Multiple-choice questions 1) According to Vernon’s theory, internationalization is (module 3, 3.5: Internationalization): a) Related to the lifecycle in the development of new products b) A way for reducing transaction costs through internalization of production processes taking place in diverse countries c) Mainly intended to in-source knowledge located in diverse geographical areas d) Mainly intended to search new and cheaper resources, i.e., cheaper labour 2) Firm A must decide whether to integrate with its supplier, firm B. Firm A is large and has a functional organizational structure. It produce s three products (1, 2, 3 ), which are sold both on domestic and international markets. Most of the revenues (85%) come from product 1 and 2. The input produced by firm B is used only in the production of product 3. It consists of a standardized component that firm A has been buying since 2005. Based on this information, we can conclude that firm A should (module 3.3: Vertical relations) a) Integrate with firm B as , according to the transaction cost s approach to vertical integration, integration causes an increase in agency efficiency, which compensates the decrease in technical efficiency b) Not integrate with firm B as, according to the transaction costs approach to vertical integration, integration causes an increase in agency efficiency, but such an increase never compensates the decrease in technical efficiency c) Not integrate with firm B as the decrease in technical efficiency is likely remarkable since , in…