Suppose Honda operates a car engine manufacturing plant in Canada and one in Mexico. Suppose further that engine construction, once a given technology is in place, does not allow for substitution between labor and capital in production (workers and machines are always paired in the same ratio.) The plant in Canada operates according to the following production function: qc = min(2L, K), where quantity is measured in engines/hour. Since the price of labor in Mexico is cheaper, the plant in Mexico uses more labor-intensive technology and has the production function: q = min(L, 2K). Draw the qc = 80 engines/hour isoquant for the Canada plant. Mark the point of efficient production for qc = 80 (call it point A). Using a different color, draw the q = 80 engines/hour isoquant for the Mexico plant. Mark the point of efficient production for q = 80 (call it point B). (The efficient point of production involves no waste of factor inputs.) b. Suppose Honda wanted to produce 40 engines at the Canada plant, and 40 engines in the Mexico plant. How much labor and how much capital will be needed at the Canada plant? How much labor and capital will be needed at the Mexico plant? Add the inputs to determine how much labor and capital Honda needs overall to split production in this fashion. Mark this point (C) on the graph you drew at part (a). c. Now let's say the firm wanted to produce 60 engines at the Canada plant, and 20 engines at the Mexico plant - how much of each input is needed at each plant? How much of each input does Honda use overall? Mark this point (D) on the graph. d. What if the firm wanted to produce 20 engines in Canada and 60 engines in Mexico? Find the inputs needed at each plant, then mark the firm's total input use on the earlier graph (E).
Suppose Honda operates a car engine manufacturing plant in Canada and one in Mexico. Suppose further that engine construction, once a given technology is in place, does not allow for substitution between labor and capital in production (workers and machines are always paired in the same ratio.) The plant in Canada operates according to the following production function: qc = min(2L, K), where quantity is measured in engines/hour. Since the price of labor in Mexico is cheaper, the plant in Mexico uses more labor-intensive technology and has the production function: q = min(L, 2K). Draw the qc = 80 engines/hour isoquant for the Canada plant. Mark the point of efficient production for qc = 80 (call it point A). Using a different color, draw the q = 80 engines/hour isoquant for the Mexico plant. Mark the point of efficient production for q = 80 (call it point B). (The efficient point of production involves no waste of factor inputs.) b. Suppose Honda wanted to produce 40 engines at the Canada plant, and 40 engines in the Mexico plant. How much labor and how much capital will be needed at the Canada plant? How much labor and capital will be needed at the Mexico plant? Add the inputs to determine how much labor and capital Honda needs overall to split production in this fashion. Mark this point (C) on the graph you drew at part (a). c. Now let's say the firm wanted to produce 60 engines at the Canada plant, and 20 engines at the Mexico plant - how much of each input is needed at each plant? How much of each input does Honda use overall? Mark this point (D) on the graph. d. What if the firm wanted to produce 20 engines in Canada and 60 engines in Mexico? Find the inputs needed at each plant, then mark the firm's total input use on the earlier graph (E).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose Honda operates a car engine manufacturing plant in Canada and one in Mexico. Suppose
further that engine construction, once a given technology is in place, does not allow for substitution
between labor and capital in production (workers and machines are always paired in the same ratio.)
The plant in Canada operates according to the following production function: qc = min(2L, K),
where quantity is measured in engines/hour. Since the price of labor in Mexico is cheaper, the plant in
Mexico uses more labor-intensive technology and has the production function: q = min(L, 2K).
Draw the qc = 80 engines/hour isoquant for the Canada plant. Mark the point of efficient
production for qc = 80 (call it point A). Using a different color, draw the q = 80
engines/hour isoquant for the Mexico plant. Mark the point of efficient production for qM =
80 (call it point B). (The efficient point of production involves no waste of factor inputs.)
b. Suppose Honda wanted to produce 40 engines at the Canada plant, and 40 engines in the
Mexico plant. How much labor and how much capital will be needed at the Canada plant?
How much labor and capital will be needed at the Mexico plant? Add the inputs to determine
how much labor and capital Honda needs overall to split production in this fashion. Mark this
point (C) on the graph you drew at part (a).
c. Now let's say the firm wanted to produce 60 engines at the Canada plant, and 20 engines at
the Mexico plant - how much of each input is needed at each plant? How much of each input
does Honda use overall? Mark this point (D) on the graph.
d. What if the firm wanted to produce 20 engines in Canada and 60 engines in Mexico? Find the
inputs needed at each plant, then mark the firm's total input use on the earlier graph (E).
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VIEWStep 2: Draw isoquants and show efficient production points when qC=80, qM=80
VIEWStep 3: Determine the need of L and K when qC=40, qM=40
VIEWStep 4: Determine the need of L and K when qC=60, qM=20
VIEWStep 5: Determine the need of L and K when qC=20, qM=60
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