An American Company that sells consumer electronics products has manufacturing facilities in Mexico, Taiwan, and Canada. The average hourly wage, output, and annual overhead cost for each site are as follows: Mexico Taiwan Canada Hourly wage rate $1.50 $3.00 $6.00 Output per person 10 18 20 Fixed overhead cost $150,000 $90,000 $110,000
a. Given these figures, is the firm currently allocating its production resources optimally?
b. If not, what should it do? (Consider output per person as a proxy for marginal product). Suppose the firm wants to consolidate all its manufacturing into one facility. Where should it locate? Explain.