Question
Read the factors of production for two businesses: In Case manufactures cases for smart phones, while Wrap It Up is a gift-wrapping service.
In Case
• $1,500 a month for rented building
• Will need two new employees
• $2,000 for inventory expenses
• $4,500 for equipment expenses
Wrap It Up
• $1,500 a month for a rented store
• Will need five new employees
• $1,500 for inventory expenses
• $2,500 for equipment expenses
Which statement correctly compares the two businesses?
In Case will require a less costly investment in labor, while Wrap It Up will require less capital in the long term.
In Case will require less capital in the long term, while Wrap It Up will require a less costly investment in labor.
In Case will require a more costly investment in land, while Wrap It Up will have higher inventory costs.
In Case will have higher inventory costs, while Wrap It Up will require a more costly investment in land.
In Case
• $1,500 a month for rented building
• Will need two new employees
• $2,000 for inventory expenses
• $4,500 for equipment expenses
Wrap It Up
• $1,500 a month for a rented store
• Will need five new employees
• $1,500 for inventory expenses
• $2,500 for equipment expenses
Which statement correctly compares the two businesses?
In Case will require a less costly investment in labor, while Wrap It Up will require less capital in the long term.
In Case will require less capital in the long term, while Wrap It Up will require a less costly investment in labor.
In Case will require a more costly investment in land, while Wrap It Up will have higher inventory costs.
In Case will have higher inventory costs, while Wrap It Up will require a more costly investment in land.
Answers
GPT-4o mini
To compare the two businesses based on the provided factors of production, let's summarize the key financial elements for each:
### In Case
- **Rent**: $1,500
- **New Employees**: 2
- **Inventory Expenses**: $2,000
- **Equipment Expenses**: $4,500
### Wrap It Up
- **Rent**: $1,500
- **New Employees**: 5
- **Inventory Expenses**: $1,500
- **Equipment Expenses**: $2,500
### Analysis
1. **Labor Costs**:
- In Case requires 2 employees.
- Wrap It Up requires 5 employees.
Thus, Wrap It Up has a more costly investment in labor.
2. **Capital Costs (Equipment + Inventory)**:
- **In Case**: $4,500 (equipment) + $2,000 (inventory) = **$6,500**.
- **Wrap It Up**: $2,500 (equipment) + $1,500 (inventory) = **$4,000**.
Thus, In Case has a higher initial capital investment compared to Wrap It Up.
3. **Land Costs**: Both businesses have the same rent of $1,500.
### Conclusion
Based on these comparisons:
- In Case will require a more costly investment in capital (equipment and inventory).
- Wrap It Up will require a greater investment in labor.
- Both businesses have the same amount for rent (land costs).
Given the reasoning, the correct statement is:
**In Case will require a less costly investment in labor, while Wrap It Up will require less capital in the long term.**
### In Case
- **Rent**: $1,500
- **New Employees**: 2
- **Inventory Expenses**: $2,000
- **Equipment Expenses**: $4,500
### Wrap It Up
- **Rent**: $1,500
- **New Employees**: 5
- **Inventory Expenses**: $1,500
- **Equipment Expenses**: $2,500
### Analysis
1. **Labor Costs**:
- In Case requires 2 employees.
- Wrap It Up requires 5 employees.
Thus, Wrap It Up has a more costly investment in labor.
2. **Capital Costs (Equipment + Inventory)**:
- **In Case**: $4,500 (equipment) + $2,000 (inventory) = **$6,500**.
- **Wrap It Up**: $2,500 (equipment) + $1,500 (inventory) = **$4,000**.
Thus, In Case has a higher initial capital investment compared to Wrap It Up.
3. **Land Costs**: Both businesses have the same rent of $1,500.
### Conclusion
Based on these comparisons:
- In Case will require a more costly investment in capital (equipment and inventory).
- Wrap It Up will require a greater investment in labor.
- Both businesses have the same amount for rent (land costs).
Given the reasoning, the correct statement is:
**In Case will require a less costly investment in labor, while Wrap It Up will require less capital in the long term.**