Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A.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

A.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?

B.A firm is making a long-run planning decision. It wants to decide on the optimal size of plant and labor force. It is considering building a medium-sized plant and hiring 100 workers. Engineering estimates suggest that at those levels, the marginal product of capital will be 100 and the marginal product of labor will be 75. If the wage rate is $5 and the rental rate on capital is $10, is the firm making the right decision? Support your answer.

C.Carefully explain the difference between diseconomies of scale and diminishing returns.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Vanishing American Corporation Navigating The Hazards Of A New Economy

Authors: Jerry Davis, Gerald F Davis

1st Edition

1626562792, 9781626562790

More Books

Students also viewed these Economics questions

Question

Determine by direct integration the centroid of the area shown.

Answered: 1 week ago

Question

Solve each equation. 10 x = 0.1

Answered: 1 week ago