1. A shipping firm spends $10,000in attorney and consultant fees negotiating a $30,000 fuel contract with a supplier. The transactions costs of procuring the fuel is best thought of as...

	a.	$10,000
	b.	$20,000
	c.	$30,000
	d.	$40,000

2. Coal is frequently shipped by barge down the Ohio River from the mines in Pennsylvania and West Virginia to power plants dotting the river banks downstream. Suppose Dayton Power and Light (DP&L) builds a dock at its riverside plant to unload the coal delivered by BargeAmerica, an independent shipping company. The type of barge and dock used by BargeAmerica is common among barge companies, but because transportation schedules are irregular and unpredictable, BargeAmerica insists that the dock DP&L employs be reserved only for use by BargeAmerica and may not be used by any of DP&L's other suppliers.

If Dayton Power & Light signs a long-term contract with BargeAmericafor the delivery of coal, it's probably because...

	a.	there is no spot market for coal.
	b.	the power company wants to vertically integrate into the shipping business.
	c.	the power company wants to avoid giving BargeAmericaan opportunity for a "hold-up."
	d.	long term contracts are less complex than short term contracts.

3. Suppose the marginal cost of writing a contract of length L is MC(L) = 20 + 5L. What would be the optimal contract length when the marginal benefit of writing a contract is MB(L) = 120?

4. Why would a manager ever wish to bear the expense of drafting a contact or have the firm expend resources to integrate vertically and manufacture the inputs itself?" It answers the question, in part, by saying...

	a.	"spot markets do not exist for most kinds of inputs."
	b.	"vertical integration typically circumvents the 'mark-up' problems that tend to arise in procuring inputs,enabling the firm to keep costs considerably lower over the long-term."
	c.	"in the presence of specialized investments,spot exchange does not insulate a buyer from opportunism."
	d.	"managers are not well-trained in these matters,and rarely recognize the complexity of the contracting environment,subjecting them to greater transactions costs."

5. Contracts for input procurement are more attractive when...

	a.	market transactions costs are high and the contract environment involves little uncertainty.
	b.	market transactions costs are high and the contract environment involves much uncertainty.
	c.	market transactions costs are low and the contract environment involves little uncertainty.
	d.	market transactions costs are low and the contract environment involves much uncertainty.