Explain how the following shocks may affect the profit rate for a U.S firm and i

Question

Explain how the following shocks may affect the profit rate for a U.S firm and industry and define the measure of profit rate: a) Oil price increase b) Election of a union backed government c) Outsourcing of clerical work to India d) Introducing a better assembly line Explain how the following shocks may affect the profit rate for a U.S firm and industry and define the measure of profit rate: a) Oil price increase b) Election of a union backed government c) Outsourcing of clerical work to India d) Introducing a better assembly line a) Oil price increase b) Election of a union backed government c) Outsourcing of clerical work to India d) Introducing a better assembly line

Explanation / Answer

Profit rate is measured as profit/sales or revenue=Total revenue - total cost /sales

a. Oil price increase will decrease profit rate as costs will rise whereas revenue will remain same

B. Election of union backed govt will not lead to any change initially. But if govt increases wages, costs will rise and revenue being same, it means profit rate will decline.

C outsourcing of clerical work will decrease costs and thus profit rate is increased

D introducing a better assembly line will increase productivity and reduce costs. This will led to increase in profit rate

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