What does it mean when a company has a comparable advantage over international trade?
Answer:
I think the term you are referring to is "comparative advantage," and it is more commonly used in international trade typically concerning countries, not companies.
Given the production of a specific product over a specific period of time, there are two possible advantages a country can have. The first is an absolute advantage. An absolute advantage simply refers to a scenario in which, over a given time period, a country can produce a greater number of a product. If country A can make 20 desks and country B can only make 10 desks in a given time period, country A has the absolute advantage in desk production.
Comparative advantage, which is what I believe your question is referring to, is when one country has a lower *per-unit* opportunity cost of production. Let's say we have the same two countries as above with the same levels of desk production; country A has the absolute advantage there. If, however, country B can produce 10 chairs and country A can only produce 4.
Now we have a situation where it "costs" country A 5 desks to produce 1 chair, and it costs country B only 1 desk to produce 1 chair. Country B has comparative advantage in chair production. At the same time, Country A can produce 1 desk at the per-unit cost of only 1/5 of a chair, whereas it costs country B 1 chair to produce 1 desk, so country A has the comparative advantage in desk production.
To maximize trade, country A should spend its resources to produce the majority of the two country's desk needs, while country B focuses its resources towards the two country's chair needs.
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