Xanadu Industries Manufactures and Sells the Same Calipers as Utopia

question 79

Multiple Choice

Xanadu Industries manufactures and sells the same calipers as Utopia Industries. Employee wages account for 35 percent of the cost of manufacturing calipers at both Xanadu Industries and Utopia Industries. Xanadu Industries is seeking a competitive advantage over Utopia Industries. Richard, the manager put in charge of devising a strategy to meet this end, suggests lowering employee wages. This leads to a grave conflict between Richard and the labor union. Which of the following, if true, would suggest that the labor union will accept Richard's suggestion to lower the wages?

• A) As they make a large number of precision instruments, caliper manufacturers receive huge volume discounts on raw materials.
• B) Utopia Industries recently set up a new manufacturing facility in the vicinity.
• C) Xanadu Industries has taken away 20 percent of Utopia Industries' business over the last year.
• D) Utopia Industries pays its employees, on average, 10 percent more than does Xanadu Industries.
• E) Many people who work for manufacturing plants live in areas in which the manufacturing plant is the only source of employment.

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Definitions:

Aggregate Supply

The total supply of goods and services that firms in an economy are willing to sell at a given overall price level, across all existing price levels.

Long-run Aggregate Supply

The total supply of goods and services that an economy can produce when resources are fully employed at their most efficient levels, without inflation.

Short-run Aggregate Supply

The total supply of goods and services that firms in an economy are willing to produce at a given overall price level in a specific time period.

Aggregate Quantity Demanded

The aggregate quantity of a product or service that buyers are prepared and capable of buying at a specific price point within a certain time frame.