Centralized Economic Planning in the Soviet Union Was the Epitome

question 219

Multiple Choice

Centralized economic planning in the Soviet Union was the epitome of the top-down approach: factories received quotas from Moscow that they had to fill. Enforcing such orders was difficult since there were so many factories to monitor. For example, a nail factory might fulfill an order of 250,000 nails by making very small nails, or substandard nails. Suppose Moscow wants nails to build houses. It is actually paying for:

• A) high-quality nails.
• B) productivity improvements.
• C) scrap metal.
• D) whatever could minimally qualify as a "nail."

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Definitions:

Fixed Costs

Costs that do not change with the level of output or production volume, such as rent, salaries, and insurance premiums.

Margin of Safety

The difference between actual sales and the break-even point, indicating how much sales can drop before the company incurs a loss.

Break-Even Point

The level of sales at which total revenues equal total costs, and the business makes no profit but also no loss.

Sensitivity Analysis

A financial modeling technique that determines how different values of an independent variable affect a particular dependent variable under a given set of assumptions.