A firm has two opportunities for a new plant location, one is in China and the other is in Mexico. The firm's production function is given by q = L 0.5 K 0.5 , In China, the cost of labor is w=$15 and the cost of capital is r=$5. In Mexico, w=$10 and r=$10. The firm wants to produce 100 units of output. Which location should the firm choose for their new plant? Explain why. Note: Please round the optimal amounts of capital and labor at each location to the nearest whole number when making your calculations. Hint: cost-minimization rule.
A firm has two opportunities for a new plant location, one is in China and the other is in Mexico. The firm's production function is given by q = L 0.5 K 0.5 , In China, the cost of labor is w=$15 and the cost of capital is r=$5. In Mexico, w=$10 and r=$10. The firm wants to produce 100 units of output. Which location should the firm choose for their new plant? Explain why. Note: Please round the optimal amounts of capital and labor at each location to the nearest whole number when making your calculations. Hint: cost-minimization rule.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A firm has two opportunities for a new plant location, one is in China and the other is in
Mexico. The firm's production function is given by q = L 0.5 K 0.5 , In China, the cost of labor
is w=$15 and the cost of capital is r=$5. In Mexico, w=$10 and r=$10. The firm wants to
produce 100 units of output. Which location should the firm choose for their new plant?
Explain why.
Note: Please round the optimal amounts of capital and labor at each location to the nearest whole number when making your calculations.
Hint: cost-minimization rule.
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