Question:

Why would a country's firm/firms gain an comparative advantage?

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Why and what would be the specific principles?

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  1. specialization, access to cheap (over supply, naturally occuring resources).


  2. When respective parties specialize in what they do best relative to one another, they can collectively create more output over a given time frame.  At the end of the day, this means there's "more to go around," though individuals/countries might need to trade to get the exact composition of goods they desire.

    For firms, the simple answer is that comparative/competitive advantages offer profit opportunities.  For example, suppose Sony suddenly discovers a way to make DVD players far more efficiently than its competitors.  Sony can then offer a lower price than the other brands and attract more buyers.  As long as Sony follows the profit-maximizing rule of marginal revenue = marginal cost, its profits would also increase.

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