Economics: Private and Public Choice (MindTap Course List)
15th Edition
ISBN: 9781285453538
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)
Explain who should handle the labor relation in concerned country. Is it the headquarters or subsidiary? Explain why?
Chapter 25 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- 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.arrow_forwardYou are an employer seeking to fill a vacant position on an assembly line. Are you more concerned with the average product of labor or the marginal product of labor for the last person hired?arrow_forward2. Consider the production function: f(K,L) = K*L%. Let w and r denote the price of labor and capital. (a) Find the cost minimizing input bundle as a function of w, r, and q. Find the cost function. (b) Suppose two countries, A and B, have the access to the same production technology f(-) given above. Firms in both countries are cost-minimizers. Yet, the firm in country A uses relatively more labor and less capital than the firm in country B to produce the same level of output. What will ex- plain this?arrow_forward
- Suppose that you and a friend have started a pizza delivery business. First you had to find a shop front to make the pizzas and this costs $20,000 per year plus set up costs of $45,000 for the oven and kitchen set up. You estimate that the daily costs of labour will be $300; the ingredient cost of making a pizza is around $2.50 each and delivery is around $2 per pizza. Calculate the fixed costs of this business. If you use your combined savings to pay these costs what is the estimated implicit cost of starting the business in the first year if the interest rate is 4% per year. The government locks down the economy to prevent the spread of a deadly infectious virus, but still allows food delivery (assume that your business is one of many in a competitive market). Explain the impact of that policy on the supply, demand, equilibrium on market of pizzaarrow_forwardIf output per per person is .25 and the wage rate is 10,what is the average variable cost?arrow_forwardRecently, computer programmers in developing countries such as India have begun doing work formerly done in the United States. This shift has undoubtedly led to substantial pay cuts for some programmers in the United States. Answer the following two questions: How is this possible, when the wages of skilled labor are rising in the United States as a whole? What argument would trade economists make against seeing these wage cuts as a reason to block outsourcing of computer programming?arrow_forward
- Suppose 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_forwardA 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_forwardCalculate the Marginal Product (MP) at each input level. If the price of printer is $100 each, calculate the Value of the Marginal of labor (VMPL). If the wage rate (per week) is $1800 , how many workers will be employed? If the firm decides to hire 14 workers, what is the maximum wage the firm would be willing to pay?arrow_forward
- If 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_forwardDistinguished labor standard from labor relations.arrow_forwardThe following chart shows the number of workers and hourly wage rate required to produce different quantities of braking systems in an hour. 15 9 13 15 2.89 4.00 4.70 6.43 7.27 Quantity of Output (Q) 2 Workers (L) Wage Rate Per Hour 15.28 15.28 15.28 15.28 15.28 Calculate the cost of producing nine braking systems in an hour. Round your answer to the nearest cent. Provide your answer below:arrow_forward
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