1.Determine whether the following transactions involve spot exchange, contracts, or vertical integration.

a. A major oil company refines gasoline from crude oil produced by oil wells that it owns.

b. Transcontinental, an interstate natural-gas pipeline, has a legal obligation to purchase a specified amount of gas per week from a well owned by Fred Smith in Enid, Oklahoma.

c. A cabinetmaker purchases a dozen wood screws from the local hardware store.

d. An electric utility purchases coal from an underground mine.

2. In general, automobile manufacturers produce their own engines but purchase tires from independent suppliers. Why?

3. Which of the following transactions are likely to result in relationship-specific exchange?

a. Purchasing gasoline for the company car

b. Hiring an employee to operate a machine that only your company uses

c. Buying napkins for the company snack bar

d. Purchasing coal for the factory furnace

e. Buying electricity

4. Explain how each of the following affects the optimal method of acquiring an input.

a. A complex contracting environment

b. A specialized investment

c. Opportunism

d. Bargaining costs

e. The costs of bureaucracy

f. Gains from specialization

5. Discuss the benefits and costs of the following methods of monitoring worker performance:

a. Hidden video cameras in the workplace.

b. Time clocks.

c. Paying workers based on the output they produce