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.

Answer 1

Answer: "In Case will require a less costly investment in labor, while Wrap It Up will require less capital in the long term."

Reason: Wrap It Up needs 5 employees vs In Case's 2 (so Wrap It Up has higher labor cost). In Case has $4,500 equipment vs Wrap It Up's $2,500 (so In Case requires more capital). Rent is the same ($1,500) for both.