What of the Following Would Not Be Relevant in a Make-Or-Buy

question 65

Multiple Choice

What of the following would not be relevant in a make-or-buy decision?

• A) Unavoidable variable costs
• B) Incremental fixed costs
• C) Opportunity costs
• D) Avoidable fixed cost

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Definitions:

Agency Costs

Costs incurred in principal–agent relationships; these costs are associated with moral hazard and adverse selection problems.

Adverse Selection

A situation in economics and insurance where the party on one side of the deal has more information than the party on the other side, leading to an imbalance and potentially unfair outcomes.

Moral Hazard

The risk that one party to an agreement will engage in behavior that is undesirable from the other party's perspective because it does not bear the full consequences of its actions.

Adverse Selection

A situation in which one party in a transaction has more information than the other, leading to imbalanced and inefficient market outcomes, commonly seen in insurance markets.