Question $17$

Which of the following is correct about organizing economic activities within a firm?

a$.$ It allows a firm to facilitate transaction$-$specific investment.

b$.$ It increases flexibility since managers can compare prices and services among many different providers.

c$.$ Resolving potential conflicts can be costly and time$-$consuming.

d$.$ The enforcement of contract is often difficult.

Question $18$

$($Questions $18$ & $19$ are related$)$ The typically arises in a setting where: $(1)$ parties enter into a contract that requires transaction$-$specific investments, $(2)$ one or both of the parties run the risk of losing some or all of the return on those investments in subsequent bargaining due to unforeseen future circumstances that were non$-$contractable. Oftentimes, such settings result in underinvestments relative to the efficient level.

a$.$ Asset specificity$/$specialized asset problem

b$.$ Holdup problem

c$.$ Lack of flexibility

d$.$ Search cost