The theory of comparative advantage begins by assuming that a given firm first becomes established in its home country and may subsequently penetrate foreign markets via geographic or product differentiation.

Question

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The theory of comparative advantage applies to countries, not firms, and states that countries should specialize in producing goods or services that they have a lower opportunity cost in producing and trade with other countries to benefit from the gains of trade.

The Theory of Comparative Advantage Begins by Assuming That a Given