To please some of their board members who are concerned about the \"relative\" w
ID: 1167694 • Letter: T
Question
To please some of their board members who are concerned about the "relative" wage rate increase, the company is considering investing in training for potential Nicaragua employees to make the "relative" wage rate no worse than the U.S. wage rate of $15/hr. If the U.S. facility can produce 300 units/hr, what productivities (should be range) would allow the Nicaragua "relative" wage rate to be less than or equal to the U.S. wage rate? Use the same exchange rate and wage rate in Nicaragua from Problem 1. (Hint: Thinks U.S. rate > or equal to R, then use equation for R)
Current Exchange Rate is 1 U.S. Dollar (USD) to 25 Nicaragua Cordobas (NIO)
Current Wage Rate in Nicaragua is 200 NIO/hr
Current U.S. wage rate is $15/hr
Explanation / Answer
In the first part it was given that U.S. facility is predicted to be 2 times more productive than the Nicaragua facility which implies the units of a product that can be produced in half an hour in US would be produced in one hour in Nicaragua.
thus, Labors required for half an hour in US = Labors required for 1 hour in Nicaragua.
thus atleast wage rate for 2 hours in Nicaragua = wage rate for 1 hour in US or wage rate for 2 hours in Nicaragua > wage rate for 1 hour in US.
We have
wage rate in nicargua in dollars = 1/24 * 200 = $8.34/hour
wage rate in nicargua in dollars for two hours = 8.34 * 2 = $16.67
and wage rate in US for 1 hour = $15.
By giving $15, 300 units can be produced, therefore by giving $1, 300/15 units = 20 units will be manufactured and by giving $16.67, 20*16.67 = 333.4 units should be manufactured.
Hence atleast 333.4 units should be produced in Nicaragua in two hours that would allow the Nicaragua "relative" wage rate to be equal to the U.S. wage rate.
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