When Workers Connected with the Automobile Industry Go on Strike

question 351

Essay

When workers connected with the automobile industry go on strike, it typically makes big headlines
since the automaker will usually end up being shut down if the strike drags on. Suppose the makers
of brakes for GM go out on strike and GM has no other source from which to purchase brakes for its
new automobiles. Explain how following a restrictive current asset management policy would affect
GM in this case. What are the pros and cons of GM moving to a more flexible policy?

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Definitions:

Explicit Costs

Direct, out-of-pocket payments for resources employed in the production of goods or services.

Implicit Costs

The opportunity costs of using resources owned by the firm for its own operations, without direct payment but with foregone opportunities.

Explicit Costs

Direct, out-of-pocket payments for wages, rent, and materials, among others, involved in the production of goods or services.

Opportunity Costs

The cost of forgoing the next best alternative when making a decision or choice.