Volkswagen is considering whether to expand its automobile production (hire more
ID: 1123558 • Letter: V
Question
Volkswagen is considering whether to expand its automobile production (hire more workers) in either Germany or the United States. In Germany, 3 automobiles are produced per worker per day. In the United States, 2 automobiles are produced per worker per day. The daily salary in Germany is 200 € (Euros) and in the United States, it is $150. Currently, the exchange rate is 1 € = $1.20. Where should the Volkswagen expand its operations?
A) United States
B) Germany
C) Not enough information to answer
I know the answer to this question but I don't understand why that's the answer so if someone could explain the concept for these types of questions that would be great.
Explanation / Answer
Option A
1 € = $1.20
Germany
3 automobiles are produced per worker per day
United States
2 automobiles are produced per worker per day
Daily salary in Germany is 200 € (Euros) = 200 * 1.2 = $240
Daily salary in United States = $150
Wage for 1 automobile in Germany= 1/3*240 = $80
Wage for 1 automobile in US = 1/2*150 = $75
Therefore, the cost of production (in terms of labor) is cheaper for United States
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