A long-term contract:
A) occurs when a firm produces its own inputs.
B) is most likely in complex exchange environments.
C) exists when a firm is legally bound to purchase inputs from a particular supplier.
D) is shorter when specialized investments are important.

Question

Quizplus · Accepted Answer

A long-term contract exists when a firm is legally bound to purchase inputs from a particular supplier. This type of contract is common in situations where the inputs are specialized or unique and cannot easily be replaced by another supplier. Long-term contracts provide certainty for both parties and can lead to more stable business relationships. However, they also come with potential risks, such as a lack of flexibility and an inability to respond to changes in the market.

A Long-Term Contract