$5.$ Consider a firm in an imaginary country Compland producing computers, using computer engineers $($E$)$ and production workers $($P$).$ Computer engineers are engaged in designing computer software, while production workers are engaged in the assembling of computer components. Computer engineers are considered to be highly skilled personnel and earn relatively higher salaries $($W$\_\{$E$\})$ compared to production workers $($W$\_\{$p$\})$

$($i$)$ Starting from no$-$trade equilibrium with a production possibility frontier $($PPF$)$ of a firm, illustrate the gains from offshoring, if Compland has a comparative advantage in providing the services of the production workers.

$($ii$)$ Now suppose that advances in engineering design in the rest of the world decrease the relative salaries of computer engineers. Illustrate and discuss the implications of this change in the production of computers in Compland, with the help of a diagram.

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i Gains from Offshoring To illustrate the gains from offshoring in Compland where the country has a comparative advantage in providing the services of production workers we can analyze the impact on t... View the full answer