Question

7) A firm is considering moving from the United States to Mexico. The firm pays its U.S. workers $10.00 per hour. Currently, U.S. workers have a marginal product of 25 units, whereas Mexican workers have a marginal product of 2.5.

In order for the firm to reduce its wage cost per unit of output by moving to Mexico, the wages in Mexico must be belowper hour.

8) The following table provides information on a firm that hires labor competitively and sells its product in a competitive market.

Use the information in the table to calculate the marginal product, total revenue, and marginal revenue product associated with each quantity of labor used.

Units of Labor	Total Output	Marginal Product	Product Price	Total Revenue	Marginal Revenue Product
1	14		$2	$28
2	26		$2
3	37		$2
4	46		$2
5	53		$2
6	58		$2

If the market wage is $20, this firm will employunits of labor to maximize profit.

If the market wage falls to $15, this firm will employunits of labor to maximize profit.

Answer 1

Ans:

7) Calculation of wages rate that reduces wage cost per unit of output by moving to Mexico.

wage rate = (wages per hour in U.S / marginal product of U.S workers) * marginal product of mexico workers

=( $10 / 25 ) * 2.5

= $1 per hour

Hence to reduce wage cost,wages in Mexico must be below 1$ per hour.

8)

units of labor	total output	marginal product	product price	total revenue	marginal revenue product
1	14	14	$2	$28	$28
2	26	12	$2	$52	$24
3	37	11	$2	$74	$22
4	46	9	$2	$92	$18
5	53	7	$2	$106	$14
6	58	5	$2	$116	$10

The profit maximizing level of output is where marginal revenue is above or equal to marginal cost.

when the wage rate is $20, the firm will employee 3 units of labor to maximize profit.

when the wage rate is $15, the firm will employee 4 units of labor to maximize profit.