Homework Sourse16 An American company that sells consumer electronics produ
16) An American company that sells consumer electronics products has manufacturing facilities in Mexico, Taiwan, and Canada. The average hourly wage, output, and 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. If we use output per person as a proxy for marginal product, what is output/wage rate for each country?
B. Which location has the highest MP per dollar?
| 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 |
Solution
output per person
mexico = 10/1.5 = 6.67
taiwan = 18/3 = 6
maxico = 20/6 = 3.67
In canada fixed overhead cost is more than mexico,but it gives less output than mexico. So I think Taiwan may be optimal choice
The firm should locate itself unit in taiwan, as the fixed overhead costs here are low and also it will give more output per person in less wage rate.
