Answer:
b. abandon the production of airplane tires to fully specialize in the production of race car tires and then trade with Company Z for airplane tires.
Explanation:
Company X has a comparative advantage at producing race car tires
Company Z has a comparative advantage at producing airplane tires.
A country (company) has comparative advantage in production if it produces at a lower opportunity cost when compared to other countries (companies).
A company should specialise only in the production of the good for which it has a comparative advantage.
Company X should specialise in producing race car tires and stop producing airplane tires
Company Z should specialise in producing airplane tires and stop producing race car tires
Answer (a):
The inflation distorts the ratio as their are number of things that inflate their prices differently. The prices of the rice is increasing by 1%, wheat prices are growing by 2% and salaries expenses are increasing by 5%. This means there is no consistant increase in all the commodity prices. And this issue becomes very prominent after 3 years. Trend analysis becomes meaningless when we make technological advancements which gives us edge to control the costs of the operations and inflation does the same thing but in opposite direction. It increases the cost of different operations with different percentages.
Answer (b):
Both balance sheet and income statement items would be affected because these are monetary values that would be inflated over time which will blurr the image of the entity.
Answer: Benchmarking
Explanation: In simple words, benchmarking refers to the process under which an organisation compares it performance and processes to the other firms in the industry. Usually the firms selected for comparison are industries best.
The benchmarking is done so the company can operate its business more effectively and efficiently by correcting the mistakes. It works as a guide for other firms by studying the framework of industry leaders.
Hence from the above we can conclude that the correct option is D.
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