A U.S. synthetic rubber manufacturer is considering moving its production to a Japanese plant. Its estimated production function is q = 10L0.5K0.5 (Flath, 2011). In the United States, w = 10 = r. At its Japanese plant, the firm will pay a 10% lower wage and a 10% higher cost of capital: w* = 10/1.1 and r* = 1.1 * 10 = 11. What are L and K, and what is the cost of producing q = 100 units in both countries? What would be the cost of production in Japan if the firm had to use the same factor quantities as in the United States?
A U.S. synthetic rubber manufacturer is considering moving its production to a Japanese plant. Its estimated production function is q = 10L0.5K0.5″
by | Mar 12, 2022 | Uncategorized
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