Question
I need help understanding how to answer this: MT Inc, an American manufacturer of car parts for the US market, is planning to expand its
I need help understanding how to answer this:
MT Inc, an American manufacturer of car parts for the US market, is planning to expand its production. A company team that is developing the plans has identified two different ways of reaching the goal. One is to invest in new production facilities in India and export its products to the US. This project allows MT to take advantage of lower labor and other local costs in India. The other way is to invest in the US and keep costs down through automation. Both projects require long term commitment on the part of MT Inc, and only one of them can be pursued. The team has determined that at current conditions in the US and India, the two projects are equally profitable. However, the future trends in relative costs in the two countries may change that situation. The team examines the macroeconomic trends in India and observes that in India, productivity in the tradable sector is growing faster than in the nontradable sector, while there is no difference between the productivity growth in the two sectors in the US. Assume that the productivity of MT's investments is expected to remain constant whether it takes up the project in India or in the US. In this situation,
a.It is more profitable for MT to invest in India.
b.Investing in India and the US would be equally profitable.
c.It is more profitable for MT to invest in the US.
d.It is not worthwhile for MT to invest in either India or the US.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started