Firm X and Firm Y are competitors within the same industry.Firm X produces its product using large amounts of direct labor.Firm Y has replaced direct labor with investment in machinery.Projected sales for both firms are 15% less than in the prior year.Which statement regarding projected profits is true?
A) Firm X will lose more profit than Firm Y.
B) Firm Y will lose more profit than Firm X.
C) Firm X and Firm Y will lose the same amount of profit.
D) Neither Firm X nor Firm Y will lose profit.

Question

Quizplus · Accepted Answer

This would be true because Company X would not have to pay the direct labor employees for hours they do not work.The return on the investment of the machine would be significantly less for Company Y at the lower sales.

Firm X and Firm Y Are Competitors Within the Same