Which of the following is a disadvantage of outsourcing?

• A. Loss of control over production processes
• B. Reduction in labor costs
• C. Access to specialized expertise
• D. Increased flexibility in resource allocation

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of outsourcing in microeconomics, which involves contracting out certain business processes or production tasks to external firms rather than performing them in-house.
2. Step 2: Identify the typical advantages of outsourcing, such as reduction in labor costs, access to specialized expertise, and increased flexibility in resource allocation. These benefits help firms save money, improve quality, and adapt quickly to changes.
3. Step 3: Consider the potential disadvantages of outsourcing. One key disadvantage is the loss of control over production processes because the firm relies on an external party, which may affect quality, timing, or confidentiality.
4. Step 4: Compare the options given in the problem: reduction in labor costs, access to specialized expertise, and increased flexibility are advantages, while loss of control over production processes is a disadvantage.
5. Step 5: Conclude that the correct disadvantage of outsourcing is the loss of control over production processes, as it represents a risk or cost associated with relying on external providers.