An American company that sells consumer electronics products has manufacturing facilities in Mexico, Taiwan, and Canada. The average hourly wage, output, and annual overhead cost for each site are as follows:

Mexico Taiwan Canada

Hourly wage rate $1.50 $3.00 $6.00

Output per person 10 18 20

Fixed overhead cost $150,000 $90,000 $110,000

1. Given these figures, is the firm currently allocating its production resources optimally? If not, why do you think so? Consider output per person as a proxy for marginal product.

2. Suppose the firm wants to consolidate all of its manufacturing into one facility. Where should it locate? Is there any difference in treating cost information between (1) and (2)?

3. In deciding to consolidate its manufacturing into one facility, what are other factors the firm needs to consider? Please list and explain your reasons.

4. Nike outsources its manufacturing operation whereas New Balance does not. In terms of marginal productivity (output per person) and hourly wage rate, explain why New Balance did not outsource its production whereas Nike did briefly.