1. What are the answers to questions 1,2,3,4,5, and 6? All the information required to answer the questions are in the photos.
   

Department of Economics Spring 2020 University of California, Berkeley ECON/ENVECON C181 3. OFFSHORING MODEL Suppose that there is a continuum [0,1] of production activities (intermediate goods) in which different countries specialize depending on their wages and the costs of offshoring. Let a E [0, 1] represent the degree of skill intensity of a particular activity with a higher a (closer to 1) representing a higher level of skill intensity. Suppose that the production function for a particular activity is Leontief: Q - min (2,1-a) so that the unit cost of producing activity with skill intensity o is: C(a) = QWH + (1 -Q) WL where wH and we are the wages for high- and low-skilled labor respectively. Suppose that there are two countries, Morocco (M) and France (F) with wages as tabulated below: Morocco France High-Skilled 8 9 Low-Skilled 2 3 (1) Which country has a higher relative wage for high-skilled labor? If offshoring is possible, which country do you expect to specialize in high-skill-intensive activities and which country in low- skill-intensive activities? 7Department of Economics Spring 2020 University of California, Berkeley ECON/ENVECON C181 (2) Suppose that there are offshoring costs T. For any activity with skill intensity a, what is the unit cost of production for a French company in France? What is the unit cost of production for a French company offshoring the activity to Morocco? (3) Assume T = 3. If a = 3, will a French company choose to perform the activity in France or offshore it to Morocco? If a = , will a French company choose to perform the activity in France or offshore it to Morocco? Explain. 00Department of Economics Spring 2020 University of California, Berkeley ECON/ENVECON (3181 (4) Solve for the threshold value of 0: below or above which all activities will be offshorecl by French companies. {5) Now suppose the offshoring costs fall to T = i. What is the new unit cost of production for :1 Bench company oshoring the activity to Morocco? Solve for the new threshold of or below or above which all activities will be oshored by Hench companies. Department of Economics Spring 2020 University of California, Berkeley ECON/ENVECON C181 (6) How does this reduction in offshoring costs affect the relative demand for high-skilled labor in France? In Morocco? What will happen to the skill premium in France? In Morocco? Illustrate the effects graphically. 10