A firms should decide to make components (as opposed to buying them) when
A) it is considering adding plant capacity.
B) this decision would allow the firm to protect a secret design.
C) transportation costs are not a concern.
D) the quality demands of the firm's customers are low.

Question

Quizplus · Accepted Answer

The decision to make components instead of buying them may be justified if the firm has a secret design that it wants to protect. If the firm buys the components from an external supplier, there is a risk that the supplier could copy the design and pass it on to competitors. Therefore, if the firm wants to protect its intellectual property, it may be preferable to make the components in-house. None of the other options (adding plant capacity, transportation costs, and quality demands of customers) necessarily justify the decision to make components instead of buying them.

A Firms Should Decide to Make Components (As Opposed to Buying