Figure: A Firm's Production With and Without
Offshoring II
(Figure: A Firm's Production With and Without Offshoring
II. If the relative price of components is cheaper in a
Foreign country than the home country, then:
A)it is likely that the home country will offshore the R&D to the foreign country.
B)it is likely that the foreign country will offshore the components to the home country.
C)it is likely that the home country will offshore components to the foreign country.
D)no meaningful exchange is possible between the home and foreign country.

Question

Figure: A Firm's Production With and Without
Offshoring II 
(Figure: A Firm's Production With and Without Offshoring
II. If the relative price of components is cheaper in a
Foreign country than the home country, then:
A)it is likely that the home country will offshore the R&D to the foreign country. 
B)it is likely that the foreign country will offshore the components to the home country. 
C)it is likely that the home country will offshore components to the foreign country. 
D)no meaningful exchange is possible between the home and foreign country.

Quizplus · Accepted Answer

If the relative price of components is cheaper in a foreign country than in the home country, it is likely that the home country will offshore components to the foreign country. This is because offshoring components can reduce production costs for the firm, leading to higher profits. Offshoring R&D to the foreign country (choice A) may not be relevant in this scenario, and offshoring components to the home country (choice B) is unlikely to happen due to higher costs. No meaningful exchange is possible between the home and foreign country (choice D) is not relevant and is incorrect.

Figure: a Firm's Production with and Without