An American company that sells consumer electronics products has manufacturing f
ID: 1099420 • Letter: A
Question
An American company that sells consumer electronics products has manufacturing facilities in Mexico, Taiwan, and Canada. The average hourly wage, output per person (used as a proxy for marginal product in this problem), and overhead cost for each site are as follows:
Item
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 and why? Show all your calculations.
B. Suppose the firm wants to consolidate all its manufacturing into one facility. Where should it locate? Explain.
Item
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
Explanation / Answer
The output per person is assessed
poduction is less than 3,600,000 units Taiwan is a better location else Mexico is a better location.
The break even quantity between Mexico and Canada
0.15x+150000 = 0.30x+110000
x=(150000-110000)/(0.30-0.15)=266,667 units
a) no,the firm is not allocating its production resources optimally only.firm should to increase output per person by reducing the overhead cost hourly wage rate.
output per person is more in respect with wage rate.
mexico=10/1.5=6.67 times
taiwan=18/3=6 times
maxico=20/6=3.67 all these gives ideas about optimal resources production, But fixed overhead play an crucial role in production optimization.
in canada fixed overhead cost is more than mexico,but it gives less output than mexico.
so,in taiwan it will be more optimal.
(B) firm shoud allocate in taiwan,
here fixed overhead cost is low and also it will give more output per person in less wage rate.
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