A Company Is Deciding If It Should Design a Product

question 94

Essay

A company is deciding if it should design a product in-house or outsource the design. If outsourced, the cost for a low bidder would be $40,000, and the cost for an expensive bidder would be $100,000. To design in-house would require overtime for an already stretched design team with total costs of $70,000. If all three designs (in-house, low bid, high bid) are equal in quality and the likelihood of finding a low bidder is 60% (meaning that 40% of the time the firm will have to hire the expensive bidder), should the company outsource design or do it in-house?

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Definitions:

Money Supply

The entirety of cash, coins, and account balances in checking and savings, representing the monetary assets accessible in an economy at a given time.

Aggregate-Supply Curve

In economics, a graphical representation showing the relationship between the overall price level and the total output produced by firms in an economy at various price levels.

Fiscal Policy

Government adjustment of its spending levels and tax rates to monitor and influence a nation's economy.

Monetary Policy

A government or central bank policy aimed at controlling the money supply and interest rates to influence economic activity.