A Firm Has Two Plants,one in the United States and One

question 27

Essay

A firm has two plants,one in the United States and one in Mexico,and it cannot change the size of the plants or the amount of capital equipment.The wage in Mexico is $5.The wage in the U.S.is $20.Given current employment,the marginal product of the last worker in Mexico is 100,and the marginal product of the last worker in the U.S.is 500.
a.Is the firm maximizing output relative to its labor cost? Show how you know.
b.If it is not,what should the firm do?

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Definitions:

Inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Unionized Labor

Workers who are members of a union, which is an organization that negotiates with employers on behalf of its members for wages, hours, benefits, and working conditions.

Above-Equilibrium Wages

Wages that are higher than the market equilibrium, often set above the competitive level to attract or retain employees, possibly leading to reduced labor turnover.

Unionized Workers

Employees who are members of a union, which negotiates on their behalf for wages, benefits, and working conditions.