Unit VII 1. Suppose a firm uses sugar in a product that you purchase. The firm vertically integrates by purchasing sugar farms that produce the sugar organically and in a way that makes it also sustainable for the environment. How would that influence your demand for that product? What other purpose than profitability might cause the firm to make this decision to vertically integrate in this way? 200 words min 2. Identify a skill that you learned in this course, and explain how you can apply it to increase success in your career in a real-world scenario. 200 words3. Instructions Your assignment is to provide a final report for Ruby Red Movie Theater in which you address the concerns that have been outlined in the previous six units of this class, indicating any outsourcing or vertical integration options Ruby Red Movie Theater may be able to implement. Be specific regarding the analysis you performed in each area of study. Your recommendations for improvements for the theater should be based on economic theory and your analysis. Your complete analysis of the theater, the industry, and opportunities that may exist are crucial for the future profitability of the theater. Revise the information from previous assignments as needed and pull everything together to create a cohesive, comprehensive report. What this means is that this final report should be original updated work, though it is based on your previous assignments. Do not just copy and paste your previous assignments into one paper. Also, be sure to incorporate any suggestions your instructor made in your previous assignments. New information will be added for Unit VII, which will focus on the information provided in this unit. The topics for this section will include why firms exist, the factors that create a situation where vertical integration is desirable, and why firms would use outsourcing, as well as how this information can be applied to the Ruby Red Movie Theatre. The following is a list of items and sections you should include in your final report. Replace the unit numbers with appropriate titles for the information in each section. · Title page · Table of contents · Introduction · Unit I · Results write-up from Unit I, including recommendations · Unit II · Results write-up from Unit II, including recommendations · Unit II Tables · Unit II Graphs · Unit III · Results write-up from Unit III, including recommendations · Unit IV · Results write-up from Unit IV, including recommendations · Unit IV Tables · Unit V · Results write-up from Unit V, including recommendations · Unit V Tables · Unit VI · Results write-up from Unit VI, including recommendations · Unit VII · Results write-up from Unit VII, including recommendations · Conclusions and final recommendations · Reference page · Insert labeled tables after the reference page Adhere to APA Style (APA 7th edition) when constructing this assignment, including in-text citations and references for all sources t.

1. Unit VII
1. Suppose a firm uses sugar in a product that you purchase.
The firm vertically integrates by purchasing sugar farms that
produce the sugar organically and in a way that makes it also
sustainable for the environment. How would that influence your
demand for that product? What other purpose than profitability
might cause the firm to make this decision to vertically
integrate in this way? 200 words min
2.
Identify a skill that you learned in this course, and explain how
you can apply it to increase success in your career in a real-
world scenario. 200 words3.
Instructions
Your assignment is to provide a final report for Ruby Red
Movie Theater in which you address the concerns that have been
outlined in the previous six units of this class, indicating any
outsourcing or vertical integration options Ruby Red Movie
Theater may be able to implement.
Be specific regarding the analysis you performed in each area of
study. Your recommendations for improvements for the theater
should be based on economic theory and your analysis. Your
complete analysis of the theater, the industry, and opportunities
that may exist are crucial for the future profitability of the
theater.
Revise the information from previous assignments as needed
and pull everything together to create a cohesive,
comprehensive report. What this means is that this final report
should be original updated work, though it is based on your
previous assignments. Do not just copy and paste your previous
assignments into one paper. Also, be sure to incorporate any
suggestions your instructor made in your previous assignments.
New information will be added for Unit VII, which will focus
on the information provided in this unit. The topics for this

2. section will include why firms exist, the factors that create a
situation where vertical integration is desirable, and why firms
would use outsourcing, as well as how this information can be
applied to the Ruby Red Movie Theatre.
The following is a list of items and sections you should include
in your final report. Replace the unit numbers with appropriate
titles for the information in each section.
· Title page
· Table of contents
· Introduction
· Unit I
· Results write-up from Unit I, including recommendations
· Unit II
· Results write-up from Unit II, including recommendations
· Unit II Tables
· Unit II Graphs
· Unit III
· Results write-up from Unit III, including recommendations
· Unit IV
· Results write-up from Unit IV, including recommendations
· Unit IV Tables
· Unit V
· Results write-up from Unit V, including recommendations
· Unit V Tables
· Unit VI
· Results write-up from Unit VI, including recommendations
· Unit VII
· Results write-up from Unit VII, including recommendations
· Conclusions and final recommendations
· Reference page
· Insert labeled tables after the reference page
Adhere to APA Style (APA 7th edition) when constructing this
assignment, including in-text citations and references for all
sources that are used. Please note that no abstract is needed.
For help when citing and referencing using APA 7th edition,
consult the

3. 2020 Success Center Citation Guide . It also provides
guidance that will help you with APA Style formatting.
ECO 2301, Principles of Microeconomics 1
Course Learning Outcomes for Unit VII
Upon completion of this unit, students should be able to:
1. Discuss the central economic problem.
2. Describe how supply and demand can affect an economy.
3. Discuss types of economic market structures.
4. Explain factors that influence decision-making by consumers
and producers.
4.1 Identify why firms exist.
4.2 Identify factors that can create a situation where vertical
integration is desirable.
4.3 Describe why firms would use outsourcing.
5. Recall the theories of economic regulation.

4. Course/Unit
Learning Outcomes
Learning Activity
1 Unit VII Final Project
2 Unit VII Final Project
3 Unit VII Final Project
4.1
Unit Lesson
Chapter 11
Unit VII Final Project
4.2
Unit Lesson
Chapter 14
Webpage: The Interesting Case of the Vertical Merger
Unit VII Final Project
4.3
Unit Lesson
Chapter 14
Article: “Lessons Learned From Offshore IT Outsourcing: A
Client and Vendor
Perspective”
Webpage: 10 Small Business Functions That Can Be Easily
Outsourced
Unit VII Final Project

5. 5 Unit VII Final Project
Required Unit Resources
Chapter 11: Resource Markets
Chapter 14: Transaction Costs, Asymmetric Information, and
Behavioral Economics
In order to access the following resources, click the links
below.
Campbell, A. (2019, November 19). 10 small business functions
that can be easily outsourced. U.S. Small
Business Administration. https://www.sba.gov/blog/10-small-
business-functions-can-be-easily-
outsourced
UNIT VII STUDY GUIDE
Decision-Making, Product Integration,
and Outsourcing
https://www.sba.gov/blog/10-small-business-functions-can-be-
easily-outsourced
ECO 2301, Principles of Microeconomics 2

6. UNIT x STUDY GUIDE
Title
Haried, P., & Ramamurthy, K. (2010). Lessons learned from
offshore IT outsourcing: A client and vendor
perspective. Journal of Information Technology Case &
Application Research, 12(1), 12–38.
https://libraryresources.columbiasouthern.edu/login?url=http://s
earch.ebscohost.com/login.aspx?direc
t=true&db=tsh&AN=49119595&site=ehost-live&scope=site
Sallet, J. (2016, November 17). The interesting case of the
vertical merger [Prepared remarks]. American Bar
Association Fall Forum, Washington, DC, United States.
https://www.justice.gov/opa/speech/file/938236/download
Unit Lesson
Why Do Firms Exist?
As we enter the last units of the class, we come to a question in
economics, which is “Why do firms exist?”
The answer is that it is more efficient to organize activities
through a firm than for consumers to try and
engage in all the transactions it would take to consolidate all
the resource suppliers (McEachern, 2019). For
example, if your family was growing, and you needed a larger
house, you could find the suppliers of the
concrete to pour the foundation, of wood to make the frame, of
flooring to lay the carpet and tile, and all the

7. other resource suppliers to provide the inputs necessary to build
the house. McEachern (2019) suggests that
building a house in this way would require that you incur the
cost of:
• deciding what inputs to use and how to use them correctly and
• reaching an agreement with the resource providers to provide
their specific services.
The costs associated with painting your new house may be easy
to identify and calculate. The cost of the
brushes, paint, and labor are easily calculated. The costs of
identifying and negotiating the appropriate inputs
can get high when it comes to plumbing, electrical, and other
highly technical aspects of building the house.
McEachern (2019) suggests that the choice of incurring these
costs or hiring a firm to perform these tasks
depends on the individual consumer’s skill and opportunity cost
of time.
Even something as simple as mowing your lawn is based on
these two factors. Some consumers may have
the skill to mow their lawn, but the opportunity cost of their
time is extremely large. In this instance, the
consumer will hire a firm to mow their lawn. In another
instance, an individual’s opportunity cost of time is low,
but they may not own a lawnmower or have the skill or physical
capability to mow their lawn. Again, in this
instance, the individual will hire a firm to perform the task. The
firm that provides the lawn mowing service
exists because they minimize the transaction costs and
production costs associated with the activity of
mowing the lawn (McEachern, 2019).

8. Now that we know why the firm exists, the next question
becomes what the efficient boundaries of the firm
are. Boundaries of the firm means the degree of vertical
integration. Vertical integration means the expansion
of the firm into stages of production either earlier or before the
point where the firm specializes (McEachern,
2019). For example, Netflix introduced the ability to watch
television shows and movies through a streaming
service in 2007 (Netflix Media Center, n.d.). These television
shows were first created and then offered
through the service provided by Netflix. By 2012, Netflix
realized it could earn higher revenues by expanding
its business to include the creation of original content. That
means Netflix vertically integrated backward to
include creating the content that it offered to viewers.
Microsoft is another example of a firm that has vertically
integrated. Microsoft (2020) was founded as a firm
that developed software that computers used as operating
systems. However, in 2001, Bill Gates
demonstrated a prototype of Microsoft’s Tablet PC. In this
instance, Microsoft integrated forward to provide
not only the software technology but also the hardware.
Another form of integration is horizontal. Horizontal integration
occurs when one firm increases production of
a good or service through internal expansion, acquisition of
another firm, or a merger with another firm within
the same industry that offers the same level of product or
service (McEachern, 2019). An example of
horizontal integration is Pixar and Disney. Pixar began working
with Disney in 1986 producing short animated
films, and Disney formally purchased Pixar in 2006 (Pixar,
n.d.). Both Disney and Pixar were in the business
of creating short animated films. In other words, they occupied
the same level of supply of the good. The

9. https://libraryresources.columbiasouthern.edu/login?url=http://s
earch.ebscohost.com/login.aspx?direct=true&db=tsh&AN=4911
9595&site=ehost-live&scope=site
https://libraryresources.columbiasouthern.edu/login?url=http://s
earch.ebscohost.com/login.aspx?direct=true&db=tsh&AN=4911
9595&site=ehost-live&scope=site
https://www.justice.gov/opa/speech/file/938236/download
ECO 2301, Principles of Microeconomics 3
UNIT x STUDY GUIDE
Title
purchase of Pixar by Disney represented a horizontal integration
of the good as it expanded Disney’s
production capacity.
Another way firms can obtain resources is through outsourcing.
Outsourcing occurs when a firm purchases
products from another firm (McEachern, 2019). Outsourcing
allows firms to focus on what they do best. For
example, Mrs Baird’s specializes in making bread. Attempting
to grind their own flour from wheat to use in the
bread would be outside the core competencies of Mrs Baird’s.
Thus, Mrs Baird’s outsources the production of
flour to other companies. Likewise, Best Maid Pickles
specializes in producing various kinds of pickles. It
would be outside the core competencies of Best Maid Pickles to
attempt to grow its own cucumbers to make

10. the pickles, so Best Maid Pickles outsources cucumber
production.
McEachern (2019) suggests that internal production and making
purchases in the market are alternative ways
of organizing transactions. The decision of whether to produce a
product internally or outsource production
depends on the most efficient way to carry out the transaction.
How Do Managers Do It?
Managers must put together a puzzle of production. Very
important pieces of that puzzle are the prices of all
the inputs used in the production process. McEachern (2019)
suggests that the decisions that must be made
by mangers become greater as the firm becomes more vertically
integrated.
For example, Steve Jobs only had a brief background in
designing video games for Atari Corporation before
teaming up with Steve Wozniak (Levy, n.d.). What Jobs
understood was that the personal computer would
appeal to consumers. The creation of the coding and hardware
was left to Wozniak.
Jobs saw the market demand and knew how to market the idea.
Effectively, Steve Jobs could sell a drowning
man a drink of water, but he knew little about the development
and design of the computer itself. As Apple
began mass-producing computers, the distance between Steve
Jobs and the day-in and day-out design and
production became greater and greater.
Think about it. There were programmers developing code. There
were factories producing the computer

11. cases, keyboards, and monitors. There were salespersons
connecting with stores. What had started as an
intimate relationship between design, development, and creation
between Steve Jobs and Steve Wozniak in
their garage had evolved into a complex system.
As firms become vertically integrated, a manager’s ability to
comprehend information about a firm’s operation
becomes more and more limited. These limits on the ability of
the manager to comprehend information is
referred to as bounded rationality (McEachern, 2019). The
solution can be for the firm to reduce the
functions it performs to its core competencies and to outsource
the production of inputs that are outside of
these core competencies.
To Outsource or Not to Outsource, That Is the Question
When a firm is attempting to determine whether to outsource
production of a good or to produce it internally,
the firm will examine whether the quality of the good can be
determined. McEachern (2019) suggests that
firms will purchase inputs in the market if the quality can be
determined easily at the time of purchase.
McEachern uses an example of a flour mill purchasing wheat in
the market rather than growing its own wheat.
The quality of wheat can be easily determined by inspecting it.
However, the quality of the flour itself is the
foundation company’s reputation. The quality of flour cannot be
easily determined without constant analysis
during the production process. That is why flour mills will
outsource the production of wheat.
It may also surprise you that large fast food chains such as
Kentucky Fried Chicken (KFC) and McDonald’s

12. outsource the production of items such as their chicken nuggets.
When you visit a KFC or McDonald’s, the
chicken nuggets you order have been produced and even
precooked using the secret recipes at a processing
plant owned and operated by Tyson, Pilgrim’s Pride Chicken,
and others. The fast food restaurant receives
the pre-cooked chicken nuggets and only heats them up before
serving them to you. The reason these fast
food restaurants do this is because it is easy for them to
evaluate the quality of each shipment of chicken
ECO 2301, Principles of Microeconomics 4
UNIT x STUDY GUIDE
Title
nuggets at the point of purchase. Furthermore, it would be far
less cost-effective for each fast food restaurant
to cut the nuggets and bread and fry them for each order.
In the end, the decision to outsource products or vertically
integrate is normally based on the number of
suppliers (McEachern, 2019). If the number of suppliers is
extremely large, firms will usually just outsource
goods rather than produce it themselves. An abundance of
suppliers ensures ample product and a consistent
quality. This is why fast food restaurants outsource the
production of chicken as well as of the chicken
nuggets themselves. If a firm cannot rely on consistent supplies,

13. they will tend to make it themselves.
Economies of Scope
Have you ever sat back and thought about the wide range of
products Apple, Inc. produces? Apple, Inc.
produces operating systems, software, computers, the iPhone,
AirPods, and the list goes on and on. Apple,
Inc. has found that it is cheaper to produce more different items
than to produce them by separate firms. This
is the definition of economies of scope (McEachern, 2019).
With economies of scope, the average cost per
unit is lower as the firm produces more types of products. Costs
associated with the research and
development of an iPad can be spread across the development of
the iPhone.
As you look around you at the world, think about firms that
have vertically integrated. Do you notice
differences in the quality of goods and services that are offered
after the integration? Do you think that the
price of the final product is lower after the vertical integration?
Also, consider firms that have branched out
and are now offering different items for sale. Are these firms
effectively capturing economies of scope?
It is fascinating to examine the world around us and consider
why firms behave the way they do. Your
economics classroom is happening all around you, all the time.
Take the knowledge you have gained so far in
this class and not only grade the success of actions of firms but
also ask the question of why firms are
behaving the way they do.

14. References
Levy, S. (n.d.). Steve Jobs: American businessman. In
Encyclopaedia Britannica. Retrieved June 25, 2020,
from https://www.britannica.com/biography/Steve-Jobs
McEachern, W. A. (2019). Micro ECON6: Principles of
microeconomics. Cengage Learning.
https://online.vitalsource.com/#/books/9781337671828
Microsoft. (2020). Facts about Microsoft.
https://news.microsoft.com/facts-about-microsoft/
Netflix Media Center. (n.d.). Netflix timeline.
https://media.netflix.com/en/about-netflix
Pixar. (n.d.). Our story. https://www.pixar.com/our-story-pixar
Course Learning Outcomes for Unit VIIRequired Unit
ResourcesUnit LessonWhy Do Firms Exist?How Do Managers
Do It?To Outsource or Not to Outsource, That Is the
QuestionEconomies of ScopeReferences