Managerial Economics and Business Strategy, 7e Page 1 Chapter 6: Answers to Questions and Problems 2. When a firm requires a limited number of standardized inputs that are sold by many firms in the marketplace, the optimal method of procurement is spot exchange. One advantage of spot exchange is that they permit firms to specialize. A disadvantage is that the firm may potentially face the hold-up problem. An example, a painter purchasing paint from a local paint store. 4. Engine manufacturing involves specific investments and a complex contracting environment. By vertically integrating, the potential for opportunism is reduced. Mirrors are relatively uniform products that can be purchased by spot exchange or contract. 19. No. 21. Business-process outsourcing (BPO) is a contractual relationship with a third-party firm, whereas a firm that produces human resource services internally is vertically integrated. Contracting human resource services with a third party allows the firm to specialize in activities related to its core business, which as
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Contractual term, human resource services, Spot Exchange