US Outsource Manufacturing Quiz Questions
This quiz explores the dynamics of outsourcing in manufacturing, focusing on economic factors like comparative advantage, international price differences, and labor wages. It assesses understanding of outsourcing impacts, confirming theories like Ricardian and challenging the value chain model.
- 1.
A country will find outsourcing attractive when:
- A.
The international relative price of components is less than the home price of components
- B.
The international relative price of components is less than the foreign country’s price of components
- C.
The home relative price of components falls.
- D.
The international relative price of research and development falls
- E.
A and E
Correct Answer
A. The international relative price of components is less than the home price of componentsExplanation
When the international relative price of components is lower than the home price of components, a country will find outsourcing attractive because it can obtain the components at a lower cost from foreign countries. This allows the country to reduce production costs and potentially increase its competitiveness in the global market. By outsourcing, the country can take advantage of lower prices in other countries and benefit from cost savings.Rate this question:
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- 2.
The US congress is considering passing a law that will restrict outsourcing in industries that significant outsourcing is taking place. Identify the potential winners and losers of the outsourcing restriction
- A.
Workers in industries that are outsourcing will benefit while firms in the industries that are outsourcing and consumers will lose
- B.
Workers in industries that are outsourcing will be hurt while firms in the industries that are outsourcing will and consumers will benefit
- C.
Workers in the US will benefit while firms in the industries that are outsourcing will and consumers will lose
- D.
Unskilled workers in the US will benefit while firms in the industries in the US as well as consumers in the US will lose.
- E.
None of the above
Correct Answer
A. Workers in industries that are outsourcing will benefit while firms in the industries that are outsourcing and consumers will loseExplanation
If the US congress passes a law that restricts outsourcing in industries where significant outsourcing is taking place, the potential winners would be the workers in those industries. This is because the restriction would likely lead to more job opportunities and job security for them. On the other hand, the potential losers would be the firms in the industries that are outsourcing, as they would have to find alternative ways to conduct their business. Additionally, consumers may also lose out as the restriction could potentially lead to higher prices for goods and services.Rate this question:
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- 3.
The main factor that influences a firm’s decisions whether to outsource is
- A.
Relative equilibrium wages of skilled versus unskilled workers at home and abroad
- B.
The relative educational attainment of workers at home and abroad
- C.
The absolute wages of workers at home compared with the same figure abroad
- D.
The ability of workers abroad to speak English.
Correct Answer
A. Relative equilibrium wages of skilled versus unskilled workers at home and abroadExplanation
The main factor that influences a firm's decisions whether to outsource is the relative equilibrium wages of skilled versus unskilled workers at home and abroad. This means that the firm will consider the balance between the wages of skilled and unskilled workers in their home country compared to those in the foreign country. If the wages of skilled workers are higher in the home country while the wages of unskilled workers are lower, the firm may choose to outsource to the foreign country where they can get skilled workers at a lower cost.Rate this question:
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- 4.
The Ricardian explanation of comparative advantage is that trade occurs due to a difference in relative productivities. In some service areas, nations such as India seem to have:
- A.
Comparatively low productivities; thus, the Ricardian theory is not confirmed.
- B.
Relatively high productivities; thus, the Ricardian theory is confirmed
- C.
A surplus of labor that is unskilled but could handle some service activities.
- D.
No ability to compete with higher-skilled U.S. workers in any industry.
Correct Answer
B. Relatively high productivities; thus, the Ricardian theory is confirmedExplanation
The Ricardian explanation of comparative advantage states that trade occurs because of differences in relative productivities. The given answer suggests that nations like India have relatively high productivities, which confirms the Ricardian theory. This means that India has a competitive advantage in certain industries due to its higher productivity levels.Rate this question:
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- 5.
Outsourcing of very-high-skill medical and technology services to other countries seems to contradict the value chain model of outsourcing. What could be a reason?
- A.
The ratio of wages of lower-skilled workers to higher-skilled workers in other nations is relatively lower than the same ratio for the United States.
- B.
The wages of higher-skilled workers (such as accountants) are relatively higher than the same ratio for the United States
- C.
Higher-skilled workers in India earn top money for what they do.
- D.
The assumption that all trading costs (tariffs, transportation costs, capital, communication, etc.) are the same across country is not correct
- E.
None of the above
Correct Answer
D. The assumption that all trading costs (tariffs, transportation costs, capital, communication, etc.) are the same across country is not correctExplanation
The reason outsourcing of very-high-skill medical and technology services to other countries seems to contradict the value chain model of outsourcing is because the assumption that all trading costs (tariffs, transportation costs, capital, communication, etc.) are the same across countries is not correct. The value chain model of outsourcing is based on the idea that companies should outsource activities that can be done more efficiently and cost-effectively by other firms. However, if the trading costs vary significantly between countries, it may not be economically beneficial to outsource high-skill services to other nations, even if the wages of higher-skilled workers are relatively lower.Rate this question:
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- 6.
(Figure: Production I: With and Without Outsourcing) Assuming skilled workers are needed for R&D and unskilled workers are needed for components, if there is an increase in the price for research and development products, the firm will ___ those products, the demand for ____ will increase, their wages will rise, and the price line above will ____.
- A.
Import; unskilled workers; become steeper
- B.
Export; skilled workers; become flatter
- C.
Neither import nor export; both workers in the same proportion; not change
- D.
Import; unskilled workers; become flatter
- E.
Export; unskilled workers; becomes flatter
Correct Answer
B. Export; skilled workers; become flatterExplanation
If there is an increase in the price for research and development products, the firm will export those products. This means that the firm will sell these products to other countries rather than importing them. As a result, the demand for skilled workers, who are needed for R&D, will increase. With an increase in demand, the wages for skilled workers will rise. The price line above will become flatter because the firm is exporting more and relying less on importing components that require unskilled workers.Rate this question:
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- 7.
In general many service activities can be successfully outsourced compared with manufacturing activities because
- A.
Language barrier is low.
- B.
The United States laws do not prohibited the outsourcing service services as other countries do
- C.
Lower transportation and communications costs
- D.
A and C
- E.
A, B, and C
Correct Answer
C. Lower transportation and communications costsExplanation
Service activities can be successfully outsourced compared to manufacturing activities because of lower transportation and communication costs. This means that it is easier and more cost-effective to transfer services across geographical locations, allowing companies to take advantage of lower labor costs in other countries. Additionally, outsourcing services is not prohibited by US laws, unlike in some other countries. The combination of these factors makes outsourcing service activities more feasible and advantageous.Rate this question:
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- 8.
If relative wages for unskilled workers are lower in a foreign country, we would expect:
- A.
The home country to outsource tasks that require unskilled workers
- B.
The foreign country to outsource tasks that require unskilled workers.
- C.
The home country to outsource tasks that require skilled workers
- D.
Trade to be harmful for the home country.
Correct Answer
A. The home country to outsource tasks that require unskilled workersExplanation
If relative wages for unskilled workers are lower in a foreign country, it would be more cost-effective for the home country to outsource tasks that require unskilled workers to the foreign country. This is because the lower wages in the foreign country would make the production costs lower, allowing the home country to save money by outsourcing these tasks. Therefore, the home country would have an incentive to outsource tasks that require unskilled workers in order to remain competitive and reduce production costs.Rate this question:
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- 9.
Use the figure above to answer the following questions i) According to the combination of output shown by the isoquant, Y1:__ ii) If the relative price of components is cheaper in a foreign country than the home country, then__ iii) If the home country outsources components to a foreign country and then exports R&D to the foreign country and imports components from the foreign country, then:__ iv) If the world price of components falls, it is likely that___; and v) If the price of R&D falls, it is likely that__.
- A.
I) is beyond the nation's capabilities to produce; ii) It is likely that the home country will outsource the R&D to the foreign country; iii) The exchange results in an increase in output at lower prices and the consumers benefit due to this outsourcing ; iv) The home country will produce more R&D and trade it for components; and v) The home country could see a decline in the amount of output produced and a loss in comparative advantage in R&D.
- B.
I) is beyond the nation's capabilities to produce; ii) It is likely that the home country will outsource the R&D to the foreign country; iii) The exchange results in an increase in output at lower prices and the consumers benefit due to this outsourcing ; iv) The home country will produce more R&D and trade it for components; and v) The home country could see a rise in the amount of output produced and a loss in comparative advantage in R&D
- C.
I) is beyond the nation's capabilities to produce and could be achieved by trading with another country; ii) It is likely that the home country will outsource the components to foreign country; iii) The exchange results in an increase in output at lower prices and the consumers benefit due to this outsourcing ; iv) The home country will produce more R&D and trade it for components; and v) The home country could see a decline in the amount of output produced and a loss in comparative advantage in R&D.
- D.
I) is beyond the nation's capabilities to produce and could be achieved by trading with another country; ii) It is likely that the home country will outsource the components to the foreign country and foreign; iii) The exchange results in an increase in output at lower prices and the consumers benefit due to this outsourcing ; iv) The home country will produce more R&D and trade it for components; and v) The home country could see a rise in the amount of output produced and a loss in comparative advantage in R&D.
- E.
None of the above is completely right
Correct Answer
C. I) is beyond the nation's capabilities to produce and could be achieved by trading with another country; ii) It is likely that the home country will outsource the components to foreign country; iii) The exchange results in an increase in output at lower prices and the consumers benefit due to this outsourcing ; iv) The home country will produce more R&D and trade it for components; and v) The home country could see a decline in the amount of output produced and a loss in comparative advantage in R&D. -
- 10.
An increase in demand for skilled, outsourced labor will raise the relative wage of skilled labor in both nations because:
- A.
The outsourcing nation will shift resources from medium- to higher-skilled domestic workers
- B.
The outsourced nation will see an increase in demand from lower- to medium-skilled workers
- C.
Activities that used higher priced medium-skilled workers in the home nation now use lower-priced medium-skilled workers in the outsourced nation.
- D.
The outsourcing nation will shift resources from medium- to higher-skilled domestic workers and will see an increase in demand from lower- to medium-skilled workers, while activities that used higher priced medium-skilled workers in the home nation now use lower-priced medium-skilled workers in the outsourced nation
Correct Answer
D. The outsourcing nation will shift resources from medium- to higher-skilled domestic workers and will see an increase in demand from lower- to medium-skilled workers, while activities that used higher priced medium-skilled workers in the home nation now use lower-priced medium-skilled workers in the outsourced nationExplanation
An increase in demand for skilled, outsourced labor will raise the relative wage of skilled labor in both nations because the outsourcing nation will shift resources from medium- to higher-skilled domestic workers. This means that there will be a higher demand for skilled workers, causing their wages to increase. Additionally, the outsourced nation will see an increase in demand from lower- to medium-skilled workers, which will also lead to a rise in their wages. Furthermore, activities that used higher priced medium-skilled workers in the home nation will now use lower-priced medium-skilled workers in the outsourced nation, resulting in a decrease in wages for medium-skilled workers in the home nation.Rate this question:
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- 11.
Assume a simplified outsourcing model that involves two activities-assembly, which is unskilled-labor intensive and product development, which is skilled-labor intensive. Jupiter and Mars use these activities to produce electronic equipments. The labor in Jupiter and Mars are distributed as follows: في معادلة Which country has the higher relative wage of unskilled labor?__ and suppose the two countries engage in trade, which activity will be outsources and by who?__
- A.
Mars and assembly activity will be outsourced by Mars
- B.
Mars and assembly activity will be outsourced by Jupiter
- C.
Jupiter and assembly activity will be outsourced by Jupiter
- D.
Jupiter and assembly activity will be outsourced by Mars
- E.
Jupiter and product development will be outsourced by Jupiter
Correct Answer
A. Mars and assembly activity will be outsourced by MarsExplanation
The correct answer is Mars and assembly activity will be outsourced by Mars. This is because Mars has a higher relative wage of unskilled labor compared to Jupiter. In outsourcing, a country typically outsources activities that require lower-skilled labor to countries where labor costs are lower. Since assembly is an unskilled-labor intensive activity, Mars, with its higher relative wage of unskilled labor, would outsource this activity to reduce costs.Rate this question:
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- 12.
Which of the following groups of Ford Motor Company employees will be most adversely affected by Ford's outsourcing of part of its operations to Mexico?
- A.
Ford engineers and scientists
- B.
Ford accountants
- C.
Ford managers
- D.
Ford assembly line workers
- E.
None of the above
Correct Answer
D. Ford assembly line workersExplanation
The Ford assembly line workers will be most adversely affected by Ford's outsourcing of part of its operations to Mexico. This is because outsourcing typically involves moving production or manufacturing processes to another country where labor costs are lower. As a result, the company may choose to lay off or reduce the number of assembly line workers in order to cut costs and take advantage of cheaper labor in Mexico. This decision directly impacts the job security and livelihood of the assembly line workers, making them the group most affected by the outsourcing.Rate this question:
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- 13.
Use the diagram above to answer the following questions: i) Which line shows the initial level of production for the economy? ii) In “no-outsourcing” equilibrium, how many units of component production will occur? iii) In a “no-outsourcing” equilibrium, how many units of R&D production will occur? iv) If component parts become relatively cheaper, the firm will have an incentive to v) If this nation outsources its component production and exports R&D, how many units of each will it have available in equilibrium?
- A.
I) Line A; ii) 100; iii) 80; iv) outsource (import) components and export R&D; and v) 80 R&D; 200 components.
- B.
I) Line A; ii) 120; iii) 80; iv) components (import) outsource and export R&D; and v) 80 R&D; 200 components
- C.
I) Y0; ii) 120; iii) 80; iv) outsource (import) components and export R&D; and v) 200 R&D; 80 components
- D.
I) Y0; ii) 120; iii) 80; iv) outsource (import) components and export R&D; and v) 80 R&D; 200
- E.
I) Y0; ii) 80; iii) 80; iv) outsource (import) components and export R&D; and v) 80 R&D; 200 components
Correct Answer
D. I) Y0; ii) 120; iii) 80; iv) outsource (import) components and export R&D; and v) 80 R&D; 200Explanation
The correct answer is i) Y0; ii) 120; iii) 80; iv) outsource (import) components and export R&D; and v) 80 R&D; 200 components. This is because line Y0 represents the initial level of production for the economy. In a "no-outsourcing" equilibrium, 120 units of component production will occur, while 80 units of R&D production will occur. If component parts become relatively cheaper, the firm will have an incentive to outsource (import) components and export R&D. If the nation outsources its component production and exports R&D, it will have 80 units of R&D and 200 units of components available in equilibrium.Rate this question:
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- 14.
“Slicing the value chain” refers to:
- A.
The practice of outsourcing all activities with labor union representation at home
- B.
The transfer of activities that are more profitable when carried out in foreign nations
- C.
Substituting capital for labor wherever possible
- D.
The transfer of activities that are less profitable when carried out in foreign nations.
- E.
None of the above
Correct Answer
B. The transfer of activities that are more profitable when carried out in foreign nationsExplanation
"Slicing the value chain" refers to the transfer of activities that are more profitable when carried out in foreign nations. This means that certain parts of a company's value chain, such as manufacturing or customer service, are moved to foreign countries where they can be done more efficiently and at a lower cost. By doing so, companies can increase their profitability by taking advantage of lower labor costs or other benefits offered by foreign nations.Rate this question:
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- 15.
Samuelson's example is an analysis of a fall in export prices, which ___ the terms of trade, and ___ export volume. Samuelson's point is that a country is ___ than ___.
- A.
Improves; reduces; better off; in the absence of trade
- B.
Worsens; reduces; better off; in the absence of trade
- C.
Worsens; reduces; worse off; in the absence of trade
- D.
Worsens; reduces; worse off; in the absence of trade
Correct Answer
B. Worsens; reduces; better off; in the absence of tradeExplanation
Samuelson's example is an analysis of a fall in export prices, which worsens the terms of trade, and reduces export volume. Samuelson's point is that a country is better off in the absence of trade. This means that when export prices fall and the terms of trade worsen, the country is worse off and its overall economic situation deteriorates. Therefore, the correct answer is "worsens; reduces; better off; in the absence of trade."Rate this question:
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- 16.
Why is the United States more likely to outsource skilled service activities rather than unskilled manufacturing activities to India?
- A.
Indian “trade costs” for manufacturing and service activities are uniformly high
- B.
Relative wages of less-skilled workers are lower in India than in the United States
- C.
Indian “trade costs” associated with service activities are higher than those associated with manufacturing activities.
- D.
Indian “trade costs” associated with service activities are lower than those associated with manufacturing activities
Correct Answer
D. Indian “trade costs” associated with service activities are lower than those associated with manufacturing activitiesExplanation
The United States is more likely to outsource skilled service activities rather than unskilled manufacturing activities to India because the Indian "trade costs" associated with service activities are lower than those associated with manufacturing activities. This means that it is more cost-effective for the United States to outsource skilled services to India due to lower trade costs, while the higher trade costs for manufacturing activities make it less favorable to outsource unskilled manufacturing to India. Additionally, the relative wages of less-skilled workers are lower in India than in the United States, further incentivizing the outsourcing of skilled services.Rate this question:
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- 17.
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. i) What is the cost of conducting assembly operations in the United States and India?__ ii) If trade costs are zero, where is the value-chain “sliced”; that is, which operations will the United States outsource to India?___ iii) Suppose that “trade costs” represent 25% of wage costs in India. Now where is the value-chain “sliced”; that is, which operations will the United States outsource to India?___; iv) Suppose that U.S. and Indian wages of unskilled and skilled workers are $20,000 and $60,000 per year (United States) and $1,000 and $5,000 per year (India). What is the relative wage of skilled labor in the United States?___; and v) Which country has a higher relative wage of skilled labor?__ vi) Suppose that the United States and India engage in outsourcing. What will happen to the relative wage of skilled labor in each country?___
- A.
I) $60 in the United States and $60 in India; ii) assembly operations, component production, and office services; iii) assembly operations only; iv) $3/$1; v) India; and vi) Both the Indian and U.S. relative wage of skilled labor will increase
- B.
I) $80 in the United States and $60 in India; ii) assembly operations and component production; iii) assembly operations only; iv) $3/$1; v) India; and vi) Both the Indian and U.S. relative wage of skilled labor will increase
- C.
I) $80 in the United States and $60 in India; ii) assembly operations, component production, and office services; iii) assembly operations only; iv) $3/$1; v) India; and vi) Both the Indian and U.S. relative wage of skilled labor will increase
- D.
I) $80 in the United States and $60 in India; ii) assembly operations, component production, and office services; iii) assembly operations only; iv) $3/$1; v) India; and vi) Both the Indian and U.S. relative wage of skilled labor will decrease.
- E.
None of the above
Correct Answer
C. I) $80 in the United States and $60 in India; ii) assembly operations, component production, and office services; iii) assembly operations only; iv) $3/$1; v) India; and vi) Both the Indian and U.S. relative wage of skilled labor will increaseExplanation
i) The cost of conducting assembly operations in the United States is $80 per unit of output, while in India it is $60 per unit of output. This is calculated by multiplying the labor requirement for assembly operations (4 hours) by the wage rate for skilled workers in each country ($20 in the United States and $5 in India).
ii) If trade costs are zero, the United States will outsource assembly operations, component production, and office services to India. This is because the cost of conducting these operations is lower in India compared to the United States.
iii) If trade costs represent 25% of wage costs in India, the United States will only outsource assembly operations to India. This is because the increased trade costs make it less cost-effective to outsource component production and office services.
iv) The relative wage of skilled labor in the United States is $3 for every $1 in India. This is calculated by dividing the wage rate for skilled workers in the United States ($60,000 per year) by the wage rate for skilled workers in India ($5,000 per year).
v) India has a higher relative wage of skilled labor compared to the United States.
vi) If the United States and India engage in outsourcing, the relative wage of skilled labor will increase in both countries. This is because outsourcing typically leads to an increase in demand for skilled labor, driving up wages.Rate this question:
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- 18.
The above table shows the labor hours per unit of output for four value chain activities in two the countries-Somansland and Nomansland. Assume that beside the differences in labor costs, all the other trade costs are the same in nomansland and somansland. That is trade or outsourcing between the two countries is only influenced by labor costs. Based on the above information, we can predict that__
- A.
Somansland will outsource to nomansland
- B.
Somansland will outsource to nomansland but nomansland will not outsource to somansland
- C.
Nomansland will outsource to somansland.
- D.
Nomansland will outsource to somansland but somansland will not outsource to nomansland
- E.
None of the above
Correct Answer
C. Nomansland will outsource to somansland.Explanation
Based on the information provided, we can predict that Nomansland will outsource to Somansland. This is because the labor hours per unit of output in Nomansland are lower compared to Somansland. Assuming that all other trade costs are the same, Nomansland can take advantage of the lower labor costs in Somansland by outsourcing their value chain activities to them. On the other hand, Somansland may not outsource to Nomansland because the labor costs in Somansland are higher.Rate this question:
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- 19.
The above table shows the labor hours per unit of output for four value chain activities in two the countries-Somansland and Nomansland. Assume that beside the differences in labor costs, all the other trade costs are the same in nomansland and somansland. That is trade or outsourcing between the two countries is only influenced by labor costs. Based on the outsourcing model, what is the likely pattern of trade in terms of skilled and unskilled labor activities that are traded between Somansland and Nomansland?
- A.
Somansland will outsource high skilled labor intensive activities to Nomanslanad and performs the less skilled labor activities at home.
- B.
Nomansland will outsource high skilled labor intensive activities to Somansland and performs the less skilled labor activities at home
- C.
Somansland will outsource less skilled labor intensive activities to Nomanslanad and performs the high skilled labor activities at home
- D.
Nomansland will outsource less skilled labor intensive activities to Somansland and performs the high skilled labor activities at home
- E.
None of the above
Correct Answer
D. Nomansland will outsource less skilled labor intensive activities to Somansland and performs the high skilled labor activities at homeExplanation
Based on the outsourcing model, the likely pattern of trade between Somansland and Nomansland would be for Nomansland to outsource less skilled labor intensive activities to Somansland and perform the high skilled labor activities at home. This is because the table shows that Nomansland has a lower labor hours per unit of output for less skilled labor activities compared to Somansland. Therefore, it would be more cost-effective for Nomansland to outsource these activities to Somansland, where the labor costs are lower, while keeping the high skilled labor activities within their own country.Rate this question:
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- 20.
The above table shows the labor hours per unit of output for four value chain activities in two the countries-Somansland and Nomansland. Assume that beside the differences in labor costs, all the other trade costs are the same in nomansland and somansland. That is trade or outsourcing between the two countries is only influenced by labor costs. Assume that the value chain is sliced exactly in the middle i.e. 50% of the activities are outsourced and 50% are perform at home. Which activities will be outsourced___ and which activities will be performed at home?___?
- A.
Nomansland will outsource activities A and C and will perform activities B and D at home
- B.
Somansland will outsource activities A and B and will perform activities C and D at home
- C.
Nomansland will outsource activities C and D and will perform activities A and B at home
- D.
Somansland will outsource activities A and D and will perform activities B and C at home
- E.
None of the above
Correct Answer
A. Nomansland will outsource activities A and C and will perform activities B and D at homeExplanation
Based on the information given, the decision to outsource activities is solely based on labor costs. Since Nomansland has lower labor costs compared to Somansland, it would make sense for them to outsource the activities with higher labor requirements, which are activities A and C. On the other hand, Somansland will outsource activities A and B because they have higher labor costs, and they will perform activities C and D at home. Therefore, the correct answer is "Nomansland will outsource activities A and C and will perform activities B and D at home."Rate this question:
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