Question: A U.S. electronics firm is considering moving its production to a plant in Asia. Its estimated production function is q = L0.5K0.5 (based on Hsieh,

A U.S. electronics firm is considering moving its production to a plant in Asia. Its estimated production function is q = L0.5K0.5 (based on Hsieh, 1995). In the United States, w = 10 = r. At its Asian plant, the firm will pay a 10% lower wage and a 10% higher cost of capital: w* = 10/1.1 and r* = 1.1 × 10 = 11. What are L and K, and what is the cost of producing q = 100 units in both countries? What would be the cost of production in Asia if the firm had to use the same factor quantities as in the United States?

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