Coal and Iron Ore Are Complements in the Manufacture of Steel

question 108

Multiple Choice

Coal and iron ore are complements in the manufacture of steel. An increase in the price of coal would lead to

• A) an increase in the demand for iron ore as producers substitute more iron ore for coal in the production process.
• B) a decrease in the demand for iron ore as steel manufacturers reduce production of steel.
• C) an increase in the supply of iron ore as iron ore producers see an opportunity to expand their markets.
• D) no change in the demand for iron ore since the steel makers must use both iron ore and coal if they are to make steel.

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Definitions:

Conversion Cost

The total expenses of direct labor and manufacturing overheads used in transforming raw materials into completed goods.

Manufacturing Overhead

All indirect costs associated with the production process, including salaries of supervisors, maintenance, and utilities in the manufacturing facilities.

Product Costs

Costs that are directly associated with the creation of a product, including direct materials, direct labor, and manufacturing overhead.

Direct Materials

Raw materials that are directly traceable and integral to the finished product in the manufacturing process.