The difference in agency efficiency () between other market firms and Keikei Plc as a function of asset specificity () is given by the equation below:

= 100 2

Similarly, the difference in technical efficiency () between other market firms and Keikei Plc as a function of asset specificity () is given by the equation below

: = 500 Keep in mind that for both of the above expressions, a positive value means that the market has higher efficiency than Keikei Plc and a negative value means that Keikei Plc has higher efficiency than market firms.

a. Keikei is considering to invest in a part of the supply chain with asset specificity = 2. Calculate the difference in agency efficiency and technical efficiency between Keikei Plc and the market firms and give a concise interpretation of your results. (5 points)

b. Should Keikei Plc make this part of the supply chain internally or should it buy it from market firms and why? (10 points)

c. Suppose that the asset specificity ranges from = 0 to = 100. Find the range of values of for which Keikei Plc prefers to make a part of the supply chain internally rather than use market firms.