Production and Firm Maximizing Output
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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 current amount of capital equipment. The wage in Mexico is $5. The wage in the United States 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 United States is 500.
a. Is the firm maximizing output relative to its cost? Show how do you know.
b. If it is not, what should the firm do?
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Answer a)
Firm will be profit maximizing if the marginal product per wage is equal in both ...
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