A U.S. electronics firm is considering moving its production to a plant in Mexico. Its estimated...

A U.S. electronics firm is considering moving its production to a plant in Mexico. Its estimated production function is q = L⁰^.⁵K⁰^.⁵. In the U.S., the wage, w is ten dollars, and the cost of capital, r is also ten dollars. In Mexico, the wages is half that in the U.S., but the firm faces the same cost of capital: w^∗ = 5 and r = r^∗ = 10. If the firm wants to produce q = 100 units of output, what amount of labor and capital will it choose to utilize in the U.S.? What amount of labor and capital will it choose to utilize in Mexico? What are the total costs of producing at each plant? (Hint: With q = L⁰^.⁵K⁰^.⁵, M P_L = 0.5L⁻⁰^.⁵K⁰^.⁵ and M P_K = 0.5L⁰^.⁵K⁻⁰^.⁵.)

Expert Solution

Rahul Sunny answered 2 months ago

A US electronics firm has a plant in the US and another in China. The production...

A US electronics firm has a plant in the US and another in China. The production function is the same in both plants q = L1 2 K 1 2 (notice that marginal product of labor is MPL = 1 2L− 1 2 K 1 2 = 1 2 q L and marginal product of capital is MPK = 1 2L1 2 K− 1 2 = 1 2 q K ). The US prices are w = r = 9....

Q8-34A firm is considering moving its manufacturing plant from Chicago to a new location. The industrial...

Q8-34A firm is considering moving its manufacturing plant from Chicago to a new location. The industrial engineering department was asked to identify the various alternatives together with the costs to relocate the plant and the benefits. The engineers examined six likely sites, together with the do-nothing alternative of keeping the plant at its present location. Their findings are summarized as follows: The annual benefits are expected to be constant over the 8-year analysis period. A)Construct a choice table for interest...

When illegal immigrants come to the U.S. from Mexico, does their act of moving here to...

When illegal immigrants come to the U.S. from Mexico, does their act of moving here to work promote Purchasing Power Parity? Are they performing arbitrage in some market? Explain.

A firm has estimated its cost of capital as 5% and is considering a project with...

A firm has estimated its cost of capital as 5% and is considering a project with an initial investment of -$265,000. The subsequent cash flows are $65,000; $77,000; $83,000; $91,000; and $96,000. In the final year (year #6), the firm must pay $50,000 to clean up the site. Calculate the project’s MIRR using the three methods discussed in class. Please provide timelines, a description of all of your math, and calculator inputs.

Consider a firm with a plant in the U.S. and Canada. A U.S.-based shipper charges $1.00...

Consider a firm with a plant in the U.S. and Canada. A U.S.-based shipper charges $1.00 per unit to ship between the two countries. Assume no taxes and consider the following data. U.S. Canada Weekly Demand 7,000 6,000 Weekly Capacity 15,000 10,000 Sales Price $40 Can$50 Production Cost $17 Can$25 a. Suppose that the exchange rate is Can$1.00 (Canada) = $0.76 (U.S.). What is the best production and distribution plan, i.e., how much should be made in each country, and...

Your firm is considering extending its operations by building a new plant, which will require an...

Your firm is considering extending its operations by building a new plant, which will require an initial investment of $500M. You have determined that the new division will have a 50% chance of generating an annual free cash flow of $120M in perpetuity, a 40% chance of an annual cash flow of $75M in perpetuity and a 10% chance that the division will generate zero (0) cash. Your firm uses 30% debt and 70% equity to finance its operations. Its...

CherryBerry is considering opening a location on the east side of Mexico City. The firm is...

CherryBerry is considering opening a location on the east side of Mexico City. The firm is uncertain about the success of the venture due to uncertainty about demand for its frozen yogurt products in Mexico. Opening the store would require an initial investment of $500,000. The firm estimates that there is a 60% chance that the store will be successful and generate cash flows of $200,000 per year, forever. There is a 40% chance that the store will be a...

You are the CFO of a U.S. firm whose wholly owned subsidiary in Mexico manufactures component...

You are the CFO of a U.S. firm whose wholly owned subsidiary in Mexico manufactures component parts for your U.S. assembly operations. The subsidiary has been financed by bank borrowings in the United States. One of your analysts told you that the Mexican peso is expected to depreciate by 30 percent against the dollar on the foreign exchange markets over the next year. What actions, if any, should you take?

ou are the CFO of a U.S. firm whose wholly owned subsidiary in Mexico manufactures component...

ou are the CFO of a U.S. firm whose wholly owned subsidiary in Mexico manufactures component parts for your U.S. assembly operations. The subsidiary has been financed by bank borrowings in the United States. One of your analysts told you that the Mexican peso is expected to depreciate by 30 percent against the dollar on the foreign exchange markets over the next year. What actions, if any, should you take?

Pat James, the purchasing agent for a local plant of the Oakden Electronics Division, was considering...

Pat James, the purchasing agent for a local plant of the Oakden Electronics Division, was considering the possible purchase of a component from a new supplier. The component's purchase price, $0.90, compared favorably with the standard price of $1.10. Given the quantity that would be purchased, Pat knew that the favorable price variance would help to offset an unfavorable variance for another component. By offsetting the unfavorable variance, his overall performance report would be impressive and good enough to help...

Question