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Homework answers / question archive / a multinational corporation, has two plants, one in the United States and the other in Mexico, and it cannot change the size of the plants or the amount of capital equipment in the short run
a multinational corporation, has two plants, one in the United States and the other in Mexico, and it cannot change the size of the plants or the amount of capital equipment in the short run. The wage in Mexico is equivalent to US $5 per hour. The wage in the U.S. is $25 per hour. Given current employment situation, the productivity per worker in Mexico is 200 units per hour, and the productivity per worker in the U.S. is 400 units per hour. Is Galaxy maximizing output relative to its labor cost? If not, what should Galaxy do? Justify your answer.f
No . For maximizing output relative to the labour cost the marginal product to the labour cost should me same for both plants
Here MP/labour cost for US is =400/25
= 16
and for Mexico is. = 200/5
= 40
Here ratio for USA and Mexico is not same than Firm is not maximizing output relative to the labour cost .
For the maximizing firm should hire more worker from mexico & fewer from USA . Because ratio is higher for the mexico than USA . Or move to mexico .
