Suppose that the exchange rate between the US and Japan is Y200/$. They know Jap

Question

Suppose that the exchange rate between the US and Japan is Y200/$. They know Japanese wages are Y3000/hour and the Japanese workers can produce 150 units per hour. As a US based firm, they would like to keep the work in the US, but will not pay a higher relative wage rate to stay in the US. the Current US wage rate is $12 per hour.

Now assume the firm invested in training in both the US and Japan. The Japanese workers were able to use the training to increase their productivity to 250 units perhour, where the US increased their productivity to 150 units per hour. if the US wage rate is still $12/ hour, and the Japanese wages are Y3000/hour, what would be the exchange rate need to be to make the firm indifferent from producing in the US VS Japan(both have the same relative wage rate in terms of $)? Report answer as Y per $

Explanation / Answer

Y3000/250 units = $12/150 units (Y3000/250 units)*(150 units/12) = $1 Y150 = $1 Answer: Y150 per $

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