Consider the following model of offshoring. In order to produce one iphone. Apple needs to perform exactly once each of three activities: research and development, marketing, and manufacturing. Each activity uses skilled labor and unskilled labor as given the table below. Apple can perform each activity either in the US or in China. Wages for skilled and unskilled workers in the US and in China are, respectively:

In the US, the skilled workers' wage is 15, the unskilled workers' wage is 10, and the skilled workers in China has a wage of 12.

offshoring is costly: if an activity is performed in China then there is an additional cost of x% that apple needs to pay (you can think of those costs as representing transport costs or losses in efficiency from conducting businesses far from the company's headquarter)

In manufacturing:

skilled labor: 3 unskilled: 7

In marketing:

Skilled labor: 5 Unskilled labor: 5

In research and development:

Skilled labor: 8 unskilled labor: 2

(a)suppose x = 35%

(i) which activities are performed in the US and which are offshored to China?

(ii) what is the ratio of skilled labor to unskilled labor Apple employs in each country?

(b) now suppose that as a result of COVID-19 related disruptions to the global value chains the costs of offshoring become higher so that x= 40%

(i) which activities are now performed in the US and which are now offshored to China?

(ii) what is the ratio of skilled labor to unskilled labor Apple employs in each country?

(iii) how does the increase in offshoring cost affect the relative demand for skilled workers in each country?

2 O'shoring Consider the following model of offshoring. In order to produce one phone, Apple needs to perform exactly once each of three activities: Research and Development, Marketing, and Manufacturing. Each activityr uses Skilled labor and Unskilled labor as given in the tabie below. Apple can perform each activity either in the US or in China. Wages for Skilled and Unskilled workers in the US and in China are, respectively: tugs = 15, 1033 = 10, WEN = 12, WEN = 6. Oshoring is costly: if an activity is performed in China then there is an additional cost of 53% that Apple needs to pay [you can think of those costs as representing transport costs or losses in efciency from conducting business far from the company's headquarters}. Research 3e Dev Skilled labor 3 5 8 Unskilled labor 7 5 2 (a) Suppose a: = 35%. (i) Which activities are performed in the US and which are offshored to China? (ii) What is the ratio of Skilled labor to Unskilled labor Apple employs in each country? (b) Now suppose that as a result of Covid-lQ-related disruptions to the global value chains the costs of offshoring become higher so that a: = 40% (i) Which activities are now performed in the US and which are now offshored to China? (ii) What is the ratio of Skilled labor to Unskillecl labor Apple employs in each country? (iii) How does the increase in offshoring cost affect the relative demand for skilled workers in each country