When Deciding Whether to Make or Buy a Component Part

question 30

Multiple Choice

When deciding whether to make or buy a component part, the most relevant consideration is often:

• A) The average total cost of making the part.
• B) The unavoidable fixed manufacturing costs.
• C) The variable manufacturing costs per unit.
• D) The sunk cost of equipment used to manufacture the part.

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Definitions:

Surplus

is a situation in which the quantity of a good or service available exceeds the quantity demanded at the current price.

Price Ceiling

A government-imposed limit on how high a price can be charged on a product or service, intended to protect consumers.

Price Floor

A government-imposed minimum price charged for a good or service, typically above the equilibrium price, to prevent prices from falling too low.

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers, leading to a stable market condition.