Suppose computer manufacturer is currently producing

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Suppose a computer manufacturer is currently producing a total of 1 million computers in two states, Iowa and South Dakota. The firm is currently employing 50,000 production workers, with 20,000 working in South Dakota and 30,000 working in Iowa. The monthly wage of a production worker in South Dakota is $1,000, while the monthly wage of a production worker in Iowa is $1,800. Suppose the price of a computer is $500. Desiring to continue producing 1 million computers and knowing that the marginal product of a production worker in South Dakota is 1, while the marginal product of a production worker in Iowa is 4, explain why the firm should re-allocate labor away from South Dakota towards Iowa (i.e., cut back on workers in South Dakota and hire more workers in Iowa). Use isoquant analysis to illustrate your point(s).

Reference no: EM13898445

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