Final answer:
A decision whether to insource or outsource production is known as a make/buy decision, reflecting a crucial strategic choice that businesses face in managing their operations and long-term competitiveness.
Step-by-step explanation:
When a company is considering whether to handle production internally or to contract it out to another company, this is referred to as a make/buy decision. This decision is critical as it determines whether the company should insource (make) or outsource (buy) a good or service. Insourcing can provide more control over production and potentially utilize idle capacity, while outsourcing may offer cost savings and the benefit of a supplier's specialized skills. However, this is not merely a choice of economics; it also concerns the firm's strategic positioning in its production strategy and long-term competitive advantages. Economists describe similar choices that occur over prolonged periods as intertemporal decision-making, illustrating the importance of thinking both short-term and long-term when making production decisions.