b. Suppose that due to the opening of trade, the price of components falls by Δ PC/PC = –10%, and the price of R&D remains unchanged, ΔPR/PR = 0. Calculate the change in the wage of skilled and low-skilled labor. ΔWageHigh-skilled is __%ΔWageLow-skilled is __%c. What has happened to the relative wage of high-skilled/low-skilled labor? Does this match the predictions of the offshoring model in this chapter? Offshoring of Goods and ServicesEnd of Chapter Question-Consider the model of a firm that produces final goods using R&D and components as inputs, with costComponents: Total costs of production = Pc · Qc= 200Earnings of high-skilled labor = WH Hc = 20%3DEarnings of low-skilled labor = WL·Lc= 80Earnings of capital = R · Kc100%3DShare of total costs paid to high-skilled labor = 20/200 = 10%Share of total costs paid to low-skilled labor = 80/200 = 40%R&D: Total costs of R&D =PR· Qr200Earnings of high-skilled labor = WH· HR = 80Earnings of low-skilled labor = WL·LR = 20Earnings of capital=R· KR100Share of total costs paid to high-skilled labor = 80/200 = 40%Share of total costs paid to low-skilled labor = 20/200 = 10%a. In which factor(s) is components intensive? In which factor(s) is R&D intensive?Components is intensive inand R&D is intensive incapitalcapitalhigh-skilled laborhigh-skilled laborb. Suppose that due to the oplow-skilled laborofcomponents falls by Alow-skilled laborunchanged APp/Pn = 0 Calcıage of skilled and low-skil

Step 1: Total costs (TC) in components and R&D consists of payments to capital and labour (High…

Answered: Offshoring of Goods and Services – End…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

b. Suppose that due to the opening of trade, the price of components falls by Δ PC/PC = –10%, and the price of R&D remains unchanged, ΔPR/PR = 0. Calculate the change in the wage of skilled and low-skilled labor. ΔWageHigh-skilled is __% ΔWageLow-skilled is __% c. What has happened to the relative wage of high-skilled/low-skilled labor? Does this match the predictions of the offshoring model in this chapter?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions