Case Interview Prep

Category - Economics

While competitive advantage means that an entity produces a product at a lower opportunity cost, absolute advantage means that an entity:
  1. produces less of a product than its competitors
  2. produces more of a product than its competitors
  3. produces a better quality product than its competitors
  4. produces a longer lasting product than its competitors
Explanation
Answer: B - Absolute advantage means that an entity produces more of a product than its competitors.

Key Takeaway: An entity (firm or country) has absolute advantage if it produces more of a product than its competitors with the same resources. For example, if a Chinese chip manufacturing company produces 10 chips for every 2 employees per hour while an American company produces 7 chips for every 2 employees per hour, the Chinese company has absolute advantage. In this example, labor is the input unit but any other resource can also be used.
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