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:

Total Fixed Costs

A company's expenses that do not change with the level of production or services, such as rent, salaries, and insurance premiums.

Financial Well-being

A state where an individual has achieved a satisfactory level of financial security and freedom to make choices that allow them to enjoy life.

Short Run

A time period in which at least one input (e.g., plant size, machinery) is fixed and cannot be varied by the firm.

Economic Profit

The divergence between an organization's total turnover and its entire liabilities, including both evident and underlying costs.