Question

14. Recently, the Boeing Commercial Airline Group (BCAG) recorded orders for more than 15,000 jetliners and delivered more than 13,000 airplanes. To main- tain its output volume, this Boeing division combines efforts of capital and more than 90,000 workers. Suppose the European company, Airbus, enjoys a similar production technology and produces a similar number of aircraft, but that labor costs (including fringe benefits) are higher in Europe than in the United States. Would you expect workers at Airbus to have the same marginal product as workers at Boeing? Explain carefully

Answer 1

Marginal product of workers at airbus would be higher than the marginal product of workers at Boeing.

Because the higher wage rate in Europe implies airbus will employ more capital intensive input as compared to Boeing. Profit is maximised at diminishing marginal product, Lower labor quantity used by airbus yields a higher marginal product of labor at airbus than Boeing.