All of the following are true regarding a long- term contract between an upstream firm and a downstream firm except which one?
A)The downstream firm can incur opportunity costs.
B)Both firms have increased flexibility.
C)The upstream firm can incur opportunity costs.
D)Changes in market conditions can impose new costs to either firm.

Question

Quizplus · Accepted Answer

A long-term contract between an upstream firm and a downstream firm generally increases commitment and reduces flexibility for both firms, rather than increasing it. The downstream firm may incur opportunity costs, the upstream firm may incur production costs based on the contracted output, and changes in market conditions can impose new costs on either firm. However, increased flexibility is not typically a characteristic of long-term contracts.

All of the Following Are True Regarding a Long- Term