Answers to the questions: 1. In my opinion, the firm should not close its domestic operations due to the tremendous difference in wage rates. Because total costs include not only the cost of labor. Production at the firm’s foreign subsidiary has many advantages. The cost to transport products to the firm’s distribution center is cheaper than at the domestic plant in eighteen times. Internal company has a lower the price of cotton fabrics and much more productivity of products. 2.
In my opinion, if demand for each product far exceeded capacity both plants should specialize in producing sweatshirts because at high productivity sweatshirts at both plants, they have a relatively high price. With this strategy the demand for products will be satisfied and the company will get the maximum total income. 3. In my opinion, if demand for each product far exceeded capacity and management takes a firm stand on getting all three products in order to keep their good client relations, the domestic plant would specialize in the production of shirts and sweatshirts, and the foreign subsidiaries should specialize in producing jackets.
Domestic plant has far higher performance of shirts and sweatshirts than the foreign subsidiaries. To make a high income from the sale of shirts and sweatshirts need to produce a large quantity of goods than when selling jackets and these goods are both in comparison with jackets selling at lower wholesale prices. The finished products are shipped distribution center at a cost of $0. 0 per pound, that eighteen times less than from foreign subsidiaries.
The branch in the Maldives produces two jackets per hour, and a domestic plant produces one jacket per hour. Also foreign subsidiary has at two thousand hours available per week more than domestic firms. The subsidiary’s variable overhead four times less than in the domestic firm. Jackets have the highest price of all goods.