If a U.S. firm sets up a plant in Mexico to benefit from low-cost labor, it will likely have a comparative advantage over other firms in Mexico that sell the same product.

Question

Quizplus · Accepted Answer

Comparative advantage is determined by the ability to produce goods at a lower opportunity cost, not just by having lower labor costs. Other firms in Mexico might have their own comparative advantages, such as more efficient production processes, access to local resources, or better technology.

If a US Firm Sets Up a Plant in Mexico to Benefit