1) An American is considering relocating their Oregon facility to Nicaragua. The current exchange rate is 1 U.S. dollar (USD) to 25 Nicaragua Cordobas (NIO). The current wage rate in Nicaragua is 200 NIO per hour, and the U.S. wage rate is $15/hr. If the U.S. facility is predicted to be 2 times more productive than the Nicaragua facility, then what is the "relative" wage rate (in $/hour) in Nicaragua? Based on (relative) wage rates alone, where should the facility be located?
2) Despite your analysis in Problem, the same American company from Problem1 still wants to move the facility to Nicaragua (due to other potential benefits outside of the wage rate). 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)