Suppose that the Dell computer consists of a processor, a display, and assembling these components. Production...

 

Transcribed Image Text:

Suppose that the Dell computer consists of a processor, a display, and assembling these components. Production is sequential - the processor and display must both be fabricated (possibly in separate locations) and sent to the assembly location before the Dell computer can be assembled. The completed computers are then shipped to Dell retail stores; for our purpose here, all computers are sold to consumers in the United States. Here are the costs per unit of performing each activity in each potential sourcing location: China Taiwan Activity Processor US $35 $30 $20 Display Assembly $35 $40 $40 $20 $5 $10 Suppose China is not a member of the WTO, which means that Dell should pay a tariff when they import a component to China. The cost of shipping a component from Taiwan to China is S7, and the cost of shipping a component from the US to China is also S10. Dell does not need to pay trade costs in other transactions. Dell considers in which country, Taiwan or China, they can assemble components. 1. Calculate the cost of making a computer if it is assembled in Taiwan. 2. Calculate the cost of making a computer if it is assembled in China. 3. In which country, Taiwan or China, does Dell assemble components? 4. Now, China joined the WTO, and there is no tariff on goods imported to China. Because of that now there are no trade costs for all transactions including shipments from the US to China, and from Taiwan to China. How does Dell produce their computers now? Answer locations where each production process can be done. 5. Comparing your answers to the last two questions, comments on how international sourcing depends on trade costs when production is sequential. Suppose that the Dell computer consists of a processor, a display, and assembling these components. Production is sequential - the processor and display must both be fabricated (possibly in separate locations) and sent to the assembly location before the Dell computer can be assembled. The completed computers are then shipped to Dell retail stores; for our purpose here, all computers are sold to consumers in the United States. Here are the costs per unit of performing each activity in each potential sourcing location: China Taiwan Activity Processor US $35 $30 $20 Display Assembly $35 $40 $40 $20 $5 $10 Suppose China is not a member of the WTO, which means that Dell should pay a tariff when they import a component to China. The cost of shipping a component from Taiwan to China is S7, and the cost of shipping a component from the US to China is also S10. Dell does not need to pay trade costs in other transactions. Dell considers in which country, Taiwan or China, they can assemble components. 1. Calculate the cost of making a computer if it is assembled in Taiwan. 2. Calculate the cost of making a computer if it is assembled in China. 3. In which country, Taiwan or China, does Dell assemble components? 4. Now, China joined the WTO, and there is no tariff on goods imported to China. Because of that now there are no trade costs for all transactions including shipments from the US to China, and from Taiwan to China. How does Dell produce their computers now? Answer locations where each production process can be done. 5. Comparing your answers to the last two questions, comments on how international sourcing depends on trade costs when production is sequential.

Answer rating: 100% (QA)

1 Cost of making a computer ... View the full answer