Question

You are the manager of a vegan food producer. Match each of the following specialized investments you've made with the most appropriate specialized investment type.(physical-asset specificity or dedicated assets)

1. After signing a contract with a large vegan grocery store, you purchased a new packaging machine. This store has a very unique approach to packaging and this machine will enable your company to package your vegan goods in their preferred manner.

2. After signing a contract with a large vegan grocery store, you redesigned your new facility to be 50% larger than originally planned.

Answer 1

Ans.1) This investment is a type of dedicated asset investment.

Dedicated assets are specific contracts or equipment or software’s used by a supplier for giving specific services to specific recipient. The above contract clearly shows that the supplier is using a dedicated asset for giving packaging services to a vegan grocery store.

Ans. 2) This is an example of physical-asset specificity investment.

Asset specificity means the degree to which an asset can be adapted for other purposes. Here the facility has been adapted for fulfilling the purpose as covered in the contract.