a. Consider the following scenario. Wages for skilled and unskilled labor in the US are WS = $8 and WU = $4. In Mexico, wages are WS* = $6 and WU*=$1. Consider two production activities assembly and components manufacturing. Assembly employs 3 unskilled workers and 1 skilled worker per one unit of final product. Components manufacturing employs 3 skilled workers and 1 unskilled worker per unit of final product. Outsourcing costs are $10 per unit of final product for either stage of production. a. Which stage of production will the Home country outsource? Show your work!

b. What would happen to your answer in part a if the cost of outsourcing increases to $14?