site+specificity

Jason Strachman

This information was acquired from //Managerial Economics and Business Strategy// by Michael R. Baye on page 209.


 * Site specificity** occurs when the buyer and the seller of an input must locate their plates close to each other to be able to engage in an exchange.

For example, paper mills may locate close to a tree cutting company and a forest because the output (paper) is less expensive to ship than the input (wood). The cost of building the two plates close to each other represents a specialized investment that would have little value if the parties were not involved in an exchange. In other words, there would be no value in a movie producer building a new movie studio next to a gas station because there would be no value in the parties being next to each other since there is no exchange between the two.

__Question 1:__ True or False -- site specificity refers to the purchasing of equipment needed to produce specific inputs.


 * Answer is False**

__Question 2:__ Site specificity occurs when both the buyer and seller of an input must do what to each other to be able to engage in exchange?

A. locate their plants close to each other B. locate their plants as far away as possible from each other C. merge the two companies D. None of the Above


 * Answer is A**