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An American company that sells consumer electronics products has manufacturing facilities in Mexico, taiwan & Canada. The average hourly wage, output, & 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

a. Given these figures, is the firm currently allocating its production resources optimally? If not, what should it do? (consider output per person as a proxy for marginal products)

b. Suppose the firm wants to consolidate all its manufacturing into one facility. Where should it locate? Explain.

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The output per person is assessed.

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ANSWERS

A.
Mexico = $1.5/10 = $0.15
Taiwan = ...

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