Differences in productivity are usually the major force behind differences in wa
ID: 1114812 • Letter: D
Question
Differences in productivity are usually the major force behind differences in wages and unit labor costs. Suppose that a single unskilled worker at a pottery factory in Mexico can produce 1 mug per hour. By comparison, suppose that a single unskilled worker at a pottery factory in the United States can produce 19 mugs per hour because more and better machinery generates higher labor productivity. The Mexican mugs and the American mugs are identical in quality and durability and sell for the same price. The daily minimum wage in Mexico is 60 pesos per day for an 8-hour work day, and the exchange rate between Mexican pesos and U.S. dollars is 18 pesos per dollar. The federal minimum wage in the United States was $7.25 per hour.
Instructions: Round your answers to 3 decimal places.
a. If unskilled pottery workers are paid the local minimum wage in both countries, how much is the labor cost per mug for mugs produced in Mexico?
$___per mug.
For mugs produced in the United States?
$____per mug.
b. With regard to mug production, how much higher are labor costs per hour in the United States?
$___per hour.
c. With regard to mug production, how much higher are labor costs per unit in Mexico?
$___per unit.
d. Do higher labor costs per hour always imply higher labor costs per unit? yes or no
e. If firms with lower labor costs per unit expand while those with higher labor costs per unit contract, in which country will mug-making firms be increasing in size and hiring more employees? The United States or Mexico ?
f. If unskilled pottery workers relocate to where they can find jobs, to which country will they be moving? Mexico or The united states
Explanation / Answer
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