All else equal, the more of an input a firm needs per year, the more likely that the net present value from making the input internally is positive.

Question

Quizplus · Accepted Answer

If a firm needs a large amount of an input per year, then producing it internally may be more cost-effective over the long-term than purchasing it from an outside supplier. This is because the firm can potentially benefit from economies of scale, produce the input at a lower cost, and avoid dependence on a single supplier. This can increase the likelihood of a positive net present value for making the input internally.

All Else Equal, the More of an Input a Firm