Offshoring of Goods and Services -- End of Chapter Question Consider the model of a firm that produces final goods using R&D and components as inputs, with cost data as follows: Components: Total costs of production = Pe Qc = 200 Earnings of high-skilled labor = W. He = 20 Earnings of low-skilled labor = WLC 80 Earnings of capital = R-Kc = 100 Share of total costs paid to high-skilled labor = 20/200 = 10% Share of total costs pald to low-skilled labor = 80/200 = 40% R&D: Total costs of R&D = Px. Qx = 200 Earnings of high-skilled labor = WH Hr = 80 Earnings of low skilled labor - W-Lx = 20 Earnings of capital =R. KR= 100 Share 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 factors) is R&D intensive? Components is intensive in and R&D is intensive in b. Suppose that due to the opening of trade, the price of components falls by A P/Pe=-10%, and the price of R&D remains unchanged. AP/Px = 0. Calculate the change in the wage of skilled and low-skilled labor. A Wagod A Wagenowskated 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? The relative wape of high-skilled labor-skilled labor This result with the prediction of the model. Offshoring of Goods and Services ---End of Chapter Question Consider the model of a firm that produces final goods using R&D and components as inputs, with cost data as follows: Components: Total costs of production = PcQc = 200 Earnings of high-skilled labor = W. He = 20 Earnings of low-skilled labor=WL-Lc=80 Earnings of capital =R- Kc = 100 Share 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=Pk Qr = 200 Earnings of high-skilled labor WxHx = 80 Earnings of low.skilled labor = W-L2 = 20 Earnings of capital =R KR=100 Share of total costs paid to high-skilled labor 80/200 = 40% Share of total costs paid to low-skilled labor = 20/200 = 10% = 2. In which factor(s) is components intensive? In which factor(s) is R&D intensive? Components is intensive in and R&D is intensive in high-skilled labor high-skilled labor low.skilled labor low-killed labor b. Suppose that due to the op unchanged. AP/Px = 0. Calci capital rice of R&D remains of components falls by A1 Age of skilled and low-skill capital A Wage A Wagon skilled 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? The relative wage of high-skilledlabor-skilled labor This result prediction of the model rises agrees with the does not change does not agree