Choosing a Site for a Small Food Factory
A Japanese food company currently makes pickled vegetables in a port city in Shimane Prefecture, using cucumbers and radishes contracted from farmers within 30 km. Annual output is 1,200 tonnes. About 60% is sold to supermarkets in the Tokyo and Osaka metropolitan areas; the rest is sold locally. The company must replace its aging factory. Three candidate sites are proposed: (A) the existing site near a small port, (B) an industrial park near a large city in the Kantō region, and (C) a site near Ho Chi Minh City, Vietnam, where a local partner would supply vegetables. Company data show: labor cost per hour is 1,800 yen in Shimane, 2,100 yen in Kantō, and 400 yen in Vietnam; refrigerated trucking to Tokyo costs 12 yen per kilogram from Shimane and 4 yen from Kantō; processed vegetables entering Vietnam face a 15% tariff, while imports into Japan from Vietnam are mostly duty-free. Fresh vegetables are perishable, and the company's brand depends on a short time from harvest to pickling. The president also wants to keep 35 jobs in the local community.
1. Using the data, compare sites A, B, and C on three factors: distance to raw materials, distribution cost, and labor/employment. Which site would you recommend if the president gives top priority to (a) freshness and local jobs, or (b) minimizing total cost? Explain the trade-off.
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For (a), site A is strongest. The vegetables come from within 30 km, so harvest-to-pickling time is shortest, and the 35 local jobs are retained. The extra refrigerated trucking cost is real: 12 yen/kg minus 4 yen/kg = 8 yen/kg; for 1,200 tonnes (1.2 million kg), that is about 9.6 million yen per year if all output moves. But freshness and community goodwill may offset that. Site B lowers distribution cost to 4 yen/kg but raises labor to 2,100 yen/hour, 300 yen/hour above Shimane, and raw vegetables would need transport, lengthening the harvest-to-pickling time. Site C has the lowest labor cost, but a 15% tariff applies to processed vegetables entering Vietnam from Japan; if production moves to Vietnam, the Japanese brand and local jobs are lost, and quality control across borders is harder. For (b), B is likely better than C for the Japanese market because C faces tariff and distance, but a full calculation needs annual labor hours and vegetable transport costs. This is a trade-off, not a single right answer.
2. The town offers a subsidy of 50 million yen to keep the factory. Explain one economic benefit and one opportunity cost, using the data.
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One benefit is retaining 35 jobs and the demand for contracted farmers within 30 km; the town also avoids losing linked income in shops and transport. One opportunity cost is that 50 million yen cannot be used for the clinic, bus route, or child care. A second risk is deadweight loss: if the company would stay at site A anyway, the subsidy pays for an investment that would have happened. A third is accountability: the town should set conditions-job numbers, local procurement, and repayment if the factory closes early. The data do not show the factory's profits or the town's budget, so the assembly cannot judge whether 50 million yen is proportionate. The reasoning should compare the subsidy with the cost of losing 35 jobs, not just assert that jobs are good.