Consider an outsourcing model in which the labor hours of four activities in the United...

50.1K

Verified Solution

Question

Accounting

imageimage Consider an outsourcing model in which the labor hours of four activities in the United States and Mexico are as follows: Note that labor hours in Mexico are four times those in the United States, reflecting Mexico's lower productivity. Also note that the ratio of skilled to unskilled labor used in each activity increases as we move to the right, from 1/5 in assembly to 10/1 in R\&D. Suppose that the wage of U.S. unskilled workers is $12 per hour and that of skilled workers is $28 per hour and that the wage of Mexican unskilled workers is \$2 per hour and that of skilled workers is $6 per hour (these values are made up to be convenient, not realistic). Also suppose that the trade costs are 20%,30%, or 50% of labor costs, which means that an additional 20%, 30%, or 50% is added to the costs of outsourcing to Mexico. a. (10 points) Fill in the blank cells in the following table by computing the costs of production of each activity in each country (two cells are filled in for you). b. (5 points) With trade costs of 50%, where is the value chain sliced? That is, which activities are cheaper to import from Mexico and which are cheaper to produce in the United States? c. ( 5 points) With trade costs of 30%, and then 20%, where is the value chain sliced

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students