Unformatted text preview: 2 k 1 / 2 and the rental price of capital is 16. However, wages are 4 and the ﬁrm must pay a ﬁxed cost of 10000 to operate in the developing country if it chooses to produce any shirts there. (a) Explain why it is optimal for the ﬁrm to produce all the shirts at one of the two plants. (b) Given the optimal choices of k and l , what are the costs associated with producing 1000 shirts in the U.S.? In the developing country? Where will the ﬁrm produce? (c) Unions are outraged at the low wages payed by PEW in the developing country and demand that wages in the developing country increase to 9. How does this aﬀect the demand for labor in the developing country? In the U.S.? 1...
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This note was uploaded on 05/13/2010 for the course ECON 105D taught by Professor Cur during the Fall '09 term at Duke.
- Fall '09