3} h rln M I: r nlzat n s chains Suppose that production requires many activities indexed by "s\

3) Offshoring Model: Organization of supply chains Suppose that production requires many activities indexed by "s", where s varies between O and 1. There is no offshoring cost and a task can be performed in any country, "A" or "B". Assume that a task indexed by requires s hours Of skilled work and (I-s) hours Of less-skilled work. The wage of a low-skilled worker is $6 per hour in country A and $4 in country B, The wage of a skilled worker is $8 per hour in country A and $9 per hour in country B. a) Which country has the highest skill premium? b) For a task with s=O.5, will it be cheaper to locate production in country A or B? c) Show that there is a threshold such that one country (which one?) produces all tasks s < and the other country produces all tasks s > s. Solve for s. d) Now, suppose that there are offshoring costs T, such that country B's labor costs are multiplied by T for each task. What is the minimum T such that country A offshores none Of the tasks to country B?