Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 25, Problem 9CQ
To determine
Wage rate of Country M’s workers.
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A firm is considering moving from the United States to Mexico. The firm pays its U.S. workers $15.00 per hour. Currently, U.S. workers have a marginal product of 30 units, whereas Mexican workers have a marginal product of 6 units.
In order for the firm to reduce its wage cost per unit of output by moving to Mexico, the wages in Mexico must be below $___ per hour.
Show graphically why the problem of outsourcing production to China, Mexico and elsewhere is a good move economically for many companies: (consider isoquant and isocosts maps for USA and for China)
Many US based companies rely on labor from low-wage countries. Identify a company that uses labor from low-wage countries and discuss at least one region they do business in.
Chapter 25 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- A firm can use three different production technologies, with capital and labour requirements at each level of output as follows: Technology 1 Technology 2 Technology 3 Daily Output K L K L K L 100 3 7 4 5 5 4 150 3 10 4 7 5 5 200 4 11 5 8 6 6 250 5 13 6 10 7 8 a. Suppose the firm is operating in a high-wage country, where capital cost is $100 per unit per day and labour cost is $80 per worker per day. For each level of output, which technology is the cheapest? Now suppose the firm is operating in a low-wage country, where capital cost is $100 per unit per day but labour cost is only $40 per unit per day. For each level of output, which technology is the cheapest? Suppose the firm moves from a high-wage to a low-wage country but its level of output remains constant at 200 units per day. How will its total employment change?arrow_forwardSuppose that the production technology is Y = min{K, L). We want to produce 10 units of output. The level of wages is W = 2 and the price of capital is R = 3 What is the cost minimizing choice of K and L? What is the level of the cost? (Hint: Plot the isoquant at Y = 10 )arrow_forwardIf the marginal product of labor increases because of a technological advancement, it will likely cause a fall in the number of workers employed. an increase in the price of output produced by labor. a fall in the wage paid to labor. an increase in demand for labor. an increase in the supply of labor.arrow_forward
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