A U.S. electronics firm is considering moving its production abroad. Its production function is 0.6„0.4 q =L0.°Ko" (based on Hsieh, 1995), so its MP = 0.6K“ /LO* : and its MPK = 0.4L0.° /KO.6. In the United States, w = $6 and r=4. In Mexico, the wage is 50% lower than in the United States but the firm faces the same cost of capital: w* = $3.00 and r* = 4. What are L and K and what is the cost of producing q = 100 units in both countries? (for all of the following questions, enter a numeric response using a real number rounded to two decimal places) In the U.S., L is

Managerial Economics: A Problem Solving Approach
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Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter4: Extent (how Much) Decisions
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A U.S. electronics firm is considering moving its production abroad. Its production function is
0.6,,0.4
q=L
'K* (based on Hsieh, 1995), so its MP
0.4
= 0.6K
0.4
and its MPK
/L
0.6
= 0.4L
In the United States, w
= $6 and r= 4. In Mexico, the wage is 50% lower than in the United States but the firm faces the same cost of capital: w* = $3.00 and r* = 4.
What are L and K and what is the cost of producing q = 100 units in both countries? (for all of the following questions, enter a numeric response using a real number
rounded to two decimal places)
In the U.S., L is
Transcribed Image Text:A U.S. electronics firm is considering moving its production abroad. Its production function is 0.6,,0.4 q=L 'K* (based on Hsieh, 1995), so its MP 0.4 = 0.6K 0.4 and its MPK /L 0.6 = 0.4L In the United States, w = $6 and r= 4. In Mexico, the wage is 50% lower than in the United States but the firm faces the same cost of capital: w* = $3.00 and r* = 4. What are L and K and what is the cost of producing q = 100 units in both countries? (for all of the following questions, enter a numeric response using a real number rounded to two decimal places) In the U.S., L is
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