In addition to the “Big Three” of GM, Ford and Chrysler, there are 12 foreign-ow

Question

In addition to the “Big Three” of GM, Ford and Chrysler, there are 12 foreign-owned or “transplant” auto makers producing cars at factories in the U.S.

In 2007, while US automakers were struggling relative to foreign producers, labor productivity was similar in U.S.-owned and foreign-owned factories.   Chrysler and Toyota were rated as the most efficient manufacturers, taking an average of about 30 hours to produce a vehicle from start to finish. The average time was only slightly higher for GM, Ford, Honda and Nissan. Hourly wages for production workers were also similar. U.S.-owned and foreign-owned manufacturers also often used the same suppliers, and thus paid about the same prices, for materials and components.

In other ways, however, the U.S.-owned and foreign-owned manufacturers were quite different. Together, GM, Ford and Chrysler provided health care and pension benefits to roughly 80,000 retirees, compared to less than 1,000 for their foreign-owned competitors. Which of the following statements is consistent with this information about costs for automakers in 2007? (Check all of the answers that are correct--there MAY be more than one.)

At comparable levels of production, fixed costs made up a greater share of total costs for U.S.-owned automakers (such as Chrysler), than for their foreign-owned competitors (such as Toyota).

Explanation / Answer

Answer - According to the given passage, average time taken by Chrysler and Toyota are less than other firms Chrysler and Toyota uses average 30 hours in production from starting to finish a vehicle. GM, Ford, Honda, and Nissan take slightly more time in the production of a vehicle. Wage rage is similar. Labor is a variable factor. Expenditure on variable will slightly higher for GM, Ford, Honda, and Nissan in comparison with Chrysler and Toyota.

Since foreign-owned companies gives $1000 more as pension to its retirees than US-owned automobile companies pays to its retirees. It means GM, Ford and Chrysler paid lower fixed cost, but Chrysler is efficient firm it pays lower average variable cost.

At comparable levels of production, the average variable cost of a car produced in the U.S. by a U.S.-owned automaker (such as Chrysler) was similar to the average variable cost of a car produced in the U.S. by a foreign-owned firm, such as Toyota. This statement is true because both firm have same variable cost. But these firms have different fixed cost thus shut price would not be similar to Chrysler and Toyota.

Option B is the correct answer.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.