While firms buy many of their inputs through the open market, there is often a desire to produce critical inputs. A common concern in producing an input yourself (internally) is that:
A) the firm will find it too easy to manage quality.
B) the firm will not minimize costs at a high enough level of output.
C) outside competitors will learn about your inputs.
D) your firm will get prompt supply of the input.

Question

Quizplus · Accepted Answer

Producing an input internally may result in higher costs if the firm is not able to achieve economies of scale or cost minimization at a high enough level of output. This is because the firm may not have the same level of expertise, technology, or specialization in producing the input as a dedicated input producer. The availability of inputs and managing quality may also pose challenges, but they are not the main concern in this scenario. The risk of outside competitors learning about the firm's internal production is a separate issue that may or may not be relevant depending on the industry and market conditions.

While Firms Buy Many of Their Inputs Through the Open