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.

Question

Quizplus · Accepted Answer

Xanadu Industries would not lose many workers if it did reduce wages as the people live in areas in which the manufacturing plant they work for is the only industry. Reducing the cost of raw materials is a suitable way to reduce manufacturing costs. The employees of Xanadu Industries will look for employment at the new manufacturing facility of Utopia Industries if wages are lowered, hence weakening the argument. If Xanadu Industries has taken away a part of Utopia Industries' business, they already have the upper hand. And as Xanadu Industries' wages are relatively low, lowering it further would not be advised.

Xanadu Industries Manufactures and Sells the Same Calipers as Utopia