Question

The question is "suppose the wage reatio of skilled labor v.s. unskilled labor, W_H/W_H is highest in country B, and lowest in country C and country c's production involves two stages/tasks, the skilled-labor intensive R&D and the unskilled-labor intensive components. To which country should country C offshore its component production so that country c's output is maximized?

Answer 1

As per the question here, country B has a high skilled labour to unskilled labour ratio compared to country C. This means that in country C, the labour is more unskilled as a proportion to total work force. Now, country C's production involves two stages - skilled labour intensive Research and Development and the unskilled labour intensive components. Consider this in lines with comparitive advantage theory. A country should produce a good in which it has the comparitive advantage of least cost/ high quality. Country B is equipped with high level of skilled labour compared to country C. Thus, country C should offshore it R and D component which is more skilled labour intensive to country B and retain the unskilled labour intensive component.