Question

1. Why might a firm buy a product rather than make it in-house? Discuss your answer in 250 words.

Answer 1

Make or buy decision is an important decision which depends on a number of factors. The decision to buy something rather than making is more appropriate when the product is a technicality complex one or the one which needs specific expertise, and an outside manufacturer can make it better than the firm. The other cause is infeasibility of operations where the fixed cost of making it in house is forbidding and it is better to buy it. Buying is also recommended when the product is insignificant for the company and it is not worthwhile to allocate company resources for making it, and those resources can be put to a good use elsewhere. Another cause is uncertain demand of the item which does not warrant setting up a dedicated production line for it and buying is a wise option.