Suppose a U.S. automotive manufacturer was considering moving to Mexico to take advantage of the lower wage rates for unskilled Mexican labor. The typical Mexican worker could produce 20 cars per day, while the firm's typical U.S. worker can produce 50 cars per day. If the firm currently pays its U.S. workers an hourly wage of $25, economic theory suggests that the firm should

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The firm should consider moving to Mexico if the cost of labor per car is lower. Since the U.S. worker produces 50 cars at $25/hour, the cost per car is $0.50. The Mexican worker produces 20 cars, so the wage must be less than $10/hour to have a cost per car less than $0.50.