Question

Recently, the Boeing Commercial Airline Group (BCAG) recorded orders for more than 15,000 jetliners and delivered more than 13,000 airplanes. To maintain is 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 air craft, 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

Answer: Airbus Employees have a Higher Marginal Product than Boeing

Explanation:

Marginal Product of Labor refers to the extra unit produced by adding an extra unit of labor. For firms to maximise their profits, they produce at a mix of labor and Capital where $\frac{MPK}{r} = \frac{MPL}{w}$ with MPK being Marginal Product of capital and r being cost of capital and w being cost of labor.

Assuming both Boeing and Airbus are producing at the maximising expression. It is said that Airbus has the same $\frac{MPK}{r}$ as Boeing. They however has a higher w than Boeing which means that for it to equal the Capital side of the expression, the w must be dividing a higher Marginal Product of labor which shows that Airbus has a higher Marginal Product of labor.

For example,

Boeing MPK = 12

Boeing r = 4

Boeing MPL = 9

Boeing w = 3

Maximising level = 3

Airbus MPK = 12

Airbus r = 4

Airbus w = 6

Airbus MPL = ??

With a labor cost of 6, Airbus MPL will have to be 18 to be able to get to the equilibrium maximising level of 3.