What Is the Fundamental Difference Between a Fixed-Price and a Cost-Plus

question 68

Multiple Choice

What is the fundamental difference between a fixed-price and a cost-plus contract?

• A) On fixed-price contracts partnering is used while it is not used for cost-plus contracts.
• B) On fixed-price contracts macro estimates are used while micro estimates are used for cost-plus contracts.
• C) No scope changes are made on fixed-price contracts while scope changes are allowed for cost-plus contracts.
• D) On fixed-price contracts the cost is set in advance while for cost-plus contracts it is established after the project is completed.
• E) On fixed-price contracts contractors are used while on cost-plus contracts no external contractors are used.

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Definitions:

Production Function

A mathematical representation of the relationship between inputs used in production and the output generated from those inputs.

Capital Employed

The total amount of capital used for the acquisition of profits by a firm or project, including the value of all assets employed in a business.

Production Function

A formula that specifies the output generated by a firm from varying combinations of factor inputs.

Marginal Cost

The supplementary expense incurred by fabricating one more unit of a product or service.