(Table: Labor Requirements) The table gives U.S. and Indian labor requirements (hours per unit of output) needed in each of four activities to produce the final product. Suppose that wages of unskilled and skilled workers are $10 and $20 in the United States and $1 and $5 in India. If trade costs are zero, where is the value chain sliced? Which operations will the United States offshore to India?
A) assembly operations only
B) assembly operations and component production
C) assembly operations, component production, and office services
D) assembly operations, component production, office services, and R&D

Question

(Table: Labor Requirements) The table gives U.S. and Indian labor requirements (hours per unit of output) needed in each of four activities to produce the final product. Suppose that wages of unskilled and skilled workers are $10 and $20 in the United States and $1 and $5 in India. If trade costs are zero, where is the value chain sliced? Which operations will the United States offshore to India? 
A) assembly operations only 
B) assembly operations and component production 
C) assembly operations, component production, and office services 
D) assembly operations, component production, office services, and R&D

Quizplus · Accepted Answer

The value chain will be sliced after the office services operation. The United States will offshore assembly operations, component production, and office services to India due to the significantly lower wage rates for both skilled and unskilled workers. However, they will keep R&D operations as they require highly skilled workers and are typically less labor-intensive.

(Table: Labor Requirements) the Table Gives U