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Suppose you have been appointed as Global Manager of a company that has 2-plants, one in the US and one in Mexico. Suppose, you 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.

Is the firm maximizing output relative to its labor cost? Yes or No. Show how you know. If it is not, what should the firm do?

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Managerial Economics, Economics

Category:- Managerial Economics
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