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Maximizing output relative to its labor cost

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2. 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?

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Maximizing output relative to its labor cost

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a. the firm is not miximizing its output, because

-in US, the last worker is paid $20, and produces 500, which means the firm ...

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