Question

6. Two parts in an automobile taillight are the plastic exterior cover and the lightbulb.

Which of these parts is a car company more likely to manufacture in-house? Why?

Give both asset specificity and production cost rationales for this arrangement.

Discuss fully.

Answer 1

Explanation:

The automobile company produce the most likely parts of vehicles which either made of fiber, plastic and metals as this production facilities are installed in automobile company facility.

Taillight's plastic part can be produced in automobile factory as it the same material they are making in production facility and its cost doesn't count as extra on average cost of product.

While the bulb is not forte of automobile company and other electrical things automobile company source from outside companies because to setup a bulb and electrical production facility would increase burden on company and it will drive the cost of product higher than average cost of automobile product.