A software firm has only two inputs to production: domestic programmers based in the firm’s U.K. office and international programmers working from home in low-cost countries. The two types of programmers are perfect substitutes but domestic programmers are more productive due to better communication in the office
A software firm has only two inputs to production: domestic programmers based in the firm’s U.K. office and international programmers working from home in low-cost countries. The two types of programmers are perfect substitutes but domestic programmers are more productive due to better communication in the office. The production function is:
S = 2D + I
Where S is the amount of software written, D is the number of domestic programmers and I is the number of international programmers. Programmers can work part-time, so hiring 0.3 of a programmer would be possible.
(a) The firm must produce 10 pieces of software this year. Show the firm’s isoquant in a suitably labelled graph. Put “domestic programmers” on the vertical axis and “international programmers” on the horizontal axis. Label each axis from 0 to 10.
(b) A domestic programmer can be hired for £100,000 per year. An international programmer can be hired for £60,000 per year. On the same graph, show the different combinations of domestic and international programmers the firm can hire for total costs of £600,000; £500,000; and £400,000. How many of each programmer are hired, and at what total cost?
(c) The government is concerned about diversity and writes a law saying that at least two workers in any firm must be domestic, and that at least two workers must be international. Show the effect of this law on the firm’s isoquant, the number of each type of worker hired, and total costs.
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