Austin Wool Products Purchases Raw Wool and Processes It into Yarn

question 102

Multiple Choice

Austin Wool Products purchases raw wool and processes it into yarn. The spindles of yarn can then be sold directly to stores or they can be used by Austin Wool Products to make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data for the spindles of yarn and for the afghans are as follows: Each month 4,000 spindles of yarn are produced that can either be sold outright or processed into afghans.
-If Austin chooses to produce 4,000 afghans each month,the change in the monthly net operating income as compared to selling 4,000 spindles of yarn is:

• A)$24,000 decrease
• B)$24,000 increase
• C)$16,000 decrease
• D)$16,000 increase

---

Definitions:

Inflation Expectations

The rate at which people anticipate prices will increase in the future, which can influence current economic behavior and monetary policy.

Short-run Phillips Curve

A graphical representation showing an inverse relationship between the rate of inflation and the rate of unemployment in the short-term.

Production Costs

The total expense incurred in manufacturing a product or providing a service, including raw materials, labor, and overheads.

Central Bank

A nation's principal monetary authority, which regulates the money supply and interest rates in pursuit of economic objectives.