Reproduce part (a) of Problem 2. Then illustrate the gains or losses faced by the firm relative
Question:
Reproduce part (a) of Problem 2. Then illustrate the gains or losses faced by the firm relative to the initial offshoring equilibrium, assuming a fall in the price of R&D.
Data from Problem 2:
In a graph similar to Figure 7-12, illustrate the no-trade equilibrium, , for the Foreign firm.
Supposing Foreign engages in international trade, add the world relative price of components to your graph. Indicate the Foreign firm’s resource allocation and production of the final goods when it faces the new price line.
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