You may source components from Developtopia, although local laws prevent you from building any plants there. How does this affect your break-even price in each country? Who is getting ripped off here?

Now assume the Developtopian government agrees to allow you to build plants there what is your overall manufacturing strategy and what are your break-even prices in the two markets? Remember, you must still build two plants overall to service the demand for 1M widgets in each market. (Regarding the tariffs for the I.S., you will have to pay either raw material or finished goods tariffs, not both).

Raw Materials	Cost in Freetradia	Cost in I.S.	Cost in Developtopia	Transp. Cost (IS-FT or FT-IS)	Transp. Cost (Dev-IS or FT	Tariff (IS ONLY)
A	$2.00	$2.00	$1.00	$0.50	$1.00	$1.00
B	$6.00	$6.00	$3.00	$0.50	$1.00	$3.00
C	$10.00	$10.00	$5.00	$1.00	$2.00	$5.00
Labor	$12.00	$12.00	$4.00
Build Plant	$10,000,000	$8,000,000	$4,000,000
Widget				$2.00	$4.00	$13.00

Final question: who are the tariffs in the Isolated States really protecting?

n this scenario, the Developtopian plant only runs at 80% efficiency (for every 100 sets of inputs, only 80 widgets are made).Assuming this inefficiency only affects raw materials and labor, what is the impact on where you will source parts and/or build plants? (Hint: you must still make 1M widgets at each plant. The increased costs of the parts/labor are bolded below.)

Raw Materials	Cost in Freetradia	Cost in I.S.	Cost in Developtopia	Transp. Cost (IS-FT or FT-IS)	Transp. Cost (Dev-IS or FT	Tariff (IS ONLY)
A	$2.00	$2.00	$1.25	$0.50	$1.00	$1.00
B	$6.00	$6.00	$3.75	$0.50	$1.00	$3.00
C	$10.00	$10.00	$6.25	$1.00	$2.00	$5.00
Labor	$12.00	$12.00	$5.00
Build Plant	$10,000,000	$8,000,000	$4,000,000
Widget				$2.00	$4.00	$13.00

In this scenario, the widgets from the Developtopian plant have a 20% failure rate that is, 20% of your customers return them for a full refund. On top of that, it costs you an additional 5% of revenues to process the returns and provide customer service.

Now you have a 25% hit on your revenues. How does this impact your decision about where to source parts and/or build plants for the two markets? (Hint: calculate the price as before but then divide by .75 to capture effects of revenue loss. This is new break-even price).

Raw Materials	Cost in Freetradia	Cost in I.S.	Cost in Developtopia	Transp. Cost (IS-FT or FT-IS)	Transp. Cost (Dev-IS or FT	Tariff (IS ONLY)
A	$2.00	$2.00	$1.00	$0.50	$1.00	$1.00
B	$6.00	$6.00	$3.00	$0.50	$1.00	$3.00
C	$10.00	$10.00	$5.00	$1.00	$2.00	$5.00
Labor	$12.00	$12.00	$4.00
Build Plant	$10,000,000	$8,000,000	$4,000,000
Widget				$2.00	$4.00	$13.00