Question

Briefly describe the three major types of relationship between enterprises? Please make a decision based on the table below and also defend your decision. Profit-Maximizing Enterprise Combination Combination number 1 2 3 4. 5 6 7 Output Output Corn Wheat substitution price (bu) (bu) ratio ratio 0 6,000 2,000 5,600 0.20 0.70 4,000 5,000 0.30 0.70 6,000 4,100 0.45 0.70 8,000 3,000 0.55 0.70 10,000 1,700 0.65 0.70 12,000 0 0.85 0.70

Answer 1

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• 3 major types of relationships between enterprises exist. 1. Competitive Enterprises Relationships: Inverse Output dependency/relationship means output of one entrpirse cannot change positively (Increases) unless output of another enterprise change negatively (Decreases). Generally this type of relationship have constant or increasing substitution. 2. Suplementary Enterprises Relationships: If increases in output of one is not affecting production of other is know as Supplementary. Generally this type of relation where enterprises not compete with each other but add income to other enterprise by means of supplying raw material, etc. 3. Complementary Enterprises Relationships: Proportional output dependency/relationship means output of one entrpirse change positively (Increases) it reflects in output of another enterprise also change positively (Increases). • As per given data in table it shows Competitive Enterprises Relationship. • Supportive arguments of decision:

i. Data of output of Corn and Wheat shows inverse relation because from combination 1 to 7, Corn output increases and Wheat output decreases and this is characteristic of Competitive Enterprises Relationship. ii. Output substitution ratio increasing from combination 1 to 7, which is again characterstic of Competitive Enterprises Relationship