Factory X is responsible for producing the iPhone 6 and 6-plus.
For simplicity, we will assume that all materials needed to produce the iPhones are comprised under the
name iPhone Capital. What is also needed, of course, to produce the phones is iPhone Labor. At each
combination of the amount of iPhone Capital and iPhone Labor, the factory will produce a specific
number of iPhones. Apple headquarters will be announcing whether Factory X will be
responsible for producing iPhones for one of 3 US regions: Midwest, Pacific or Northeast. The number of
iPhones demanded by these regions varies. Midwest will demand the least, Pacific will demand more,
and the Northeast will demand the most. Until this announcement is made, Factory X must have a plan for
production to serve any of the three regions. After the first batch of iPhone 6/6-plus’ are produced, the iPhone
workers have grown weary of their poor working conditions and wages and have organized together and formed
a union. This union has been recognized by Factory X and will lead to higher wages for the
workers. PART A Draw the isoquant and isocost map that represents the iPhone
factory during the first batch of iPhone 6/6-plus’ – this is before the workers have unionized. Clearly
label all isoquants and isocosts and the relevant axes. Also, include the long-run expansion path that
corresponds to the 3 potential regions the factory will be serving. PART B Draw the isoquant/isocost map that demonstrates the iPhone factory
after the unionization of their workers, and the corresponding higher wagers the workers will be
paid. Label the isoquant and isocosts to show the changes in the curves relative to the curves prior to
unionization. Include also the long-run expansion path across the various regions post-unionization. PART C Describe the changes and the most critical differences between the
graphs in Part A and B, and explain the causes of those changes. PART D The unionization that took place in Factory X turns out not to be
an isolated case. All iPhone factories encounter this change, with workers unionizing and the wages for
all workers across these factories end up rising to the exact same standardized rate. The iPhone market is
a perfectly competitive market and the iPhone factories were all earning zero profits prior to
unionization. Evaluate the following assertion from the manager of Factory X:
“Our business is over. We were barely breaking even at the prevailing worker wage rate. Now that their
wages have increased, all iPhone factories will go out of business. Americans can say goodbye to
their iPhones.” Do you agree or disagree? Explain in detail, why?
