b. Suppose that due to the opening of trade, the price of components falls by Δ PC/PC = –10%, and the price of R&D remains unchanged, ΔPR/PR = 0. Calculate the change in the wage of skilled and low-skilled labor. ΔWageHigh-skilled is __%ΔWageLow-skilled is __%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? Offshoring of Goods and ServicesEnd of Chapter Question-Consider the model of a firm that produces final goods using R&D and components as inputs, with costComponents: Total costs of production = Pc · Qc= 200Earnings of high-skilled labor = WH Hc = 20%3DEarnings of low-skilled labor = WL·Lc= 80Earnings of capital = R · Kc100%3DShare 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 =PR· Qr200Earnings of high-skilled labor = WH· HR = 80Earnings of low-skilled labor = WL·LR = 20Earnings of capital=R· KR100Share 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 factor(s) is R&D intensive?Components is intensive inand R&D is intensive incapitalcapitalhigh-skilled laborhigh-skilled laborb. Suppose that due to the oplow-skilled laborofcomponents falls by Alow-skilled laborunchanged APp/Pn = 0 Calcıage of skilled and low-skil

Step 1: Total costs (TC) in components and R&D consists of payments to capital and labour (High…

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 Components: Total costs of production Pc· Qc= 200 Earnings of high-skilled labor = WH·Hc=20 %3D Earnings of low-skilled labor = WL·Lc= 80 %3D Earnings of capital = R · Kc = 100 %3D 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 = PR· QR = 200 Earnings of high-skilled labor = WH HR = 80 Earnings of low-skilled labor = WL·LR = 20 Earnings of capital = R · KR = 100 %3D Share of total costs paid to high-skilled labor = 80/200 = 40% Share of total costs paid to low-skilled labor = 20/200 = 10%

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 Components: Total costs of production Pc· Qc= 200 Earnings of high-skilled labor = WH·Hc=20 %3D Earnings of low-skilled labor = WL·Lc= 80 %3D Earnings of capital = R · Kc = 100 %3D 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 = PR· QR = 200 Earnings of high-skilled labor = WH HR = 80 Earnings of low-skilled labor = WL·LR = 20 Earnings of capital = R · KR = 100 %3D Share of total costs paid to high-skilled labor = 80/200 = 40% Share of total costs paid to low-skilled labor = 20/200 = 10%

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter7: Production Economics

Section: Chapter Questions

Problem 8E

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model of a firm that produces final goods using R&D and components as inputs, with cost data as follows:Assembly: Total cost of production = PAQA = 400Earnings of High-Skilled Labor = WHHA = 100Earnings of Low-Skilled Labor = WLLA = 200Earnings of Capital = RKA = 100R&D: Total cost of production = PRQR = 400Earnings of High-Skilled Labor = WHHR = 175Earnings of Low-Skilled Labor = WLLR = 125Earnings of Capital = RKR = 100A) In which factor(s) is assembly intensive? In which factor(s) is R&D intensive?B) Suppose that due to the opening of trade, the price of assembly falls by ∆PA/PA = −20%, the price of R&D remains unchanged, ∆PR/PR = 0%, and capital’s share earnings remains constant.C) What has happened to the relative wage of high-skilled/low-skilled labor? Does this match the predictions of the offshoring model?
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