Question

You are a producer of rock salt. Last month, a tornado at your factory eliminated 50% of your firm’s production capability. At the same time, your compensation costs increased by 5% because of an annual pay raise. What is the consequence of these events?

Answer 1

The Flood shifts Supply to the left.

Step-by-step explanation:

Since the Tornado affected 50% production abilities of the Rock Salt Producer, there is likely to be a decrease in the quantity of Rock salt that will be produced hence a decrease in the supply with might cause an increase in demand. A 5% increase in compensation cost which might have occurred due to health care, It can concluded that the consequence may be a reduced profits due to the fact that the firm can only produce 50% of what they used to produce before the tornado. This is because of the reduction in sales which is directly proportional to reduction in production, this low profits may linger for sometime until the manufacturing facility starts 100% production again. The 5% increase in compensation costs may nit have much effects since it is probably given only once a year.