With economies of scale and decreasing unit costs,a country has the incentive to:
A) Specialize completely in the product of its comparative advantage
B) Specialize partially in the product of its comparative advantage
C) Specialize completely in the product of its comparative disadvantage
D) Specialize partially in the product of its comparative disadvantage

Question

Quizplus · Accepted Answer

With economies of scale and decreasing unit costs, it becomes more efficient for a country to specialize in the product of its comparative advantage. This is because the country can produce that good at a lower cost compared to other countries. By specializing completely in this product, the country can maximize its gains from trade and increase its overall output and income. Partial specialization is also a viable option, but complete specialization is more efficient in terms of producing the highest output and income for the country. Specializing in the product of its comparative disadvantage is not an optimal strategy as it would result in higher costs and lower output.

With Economies of Scale and Decreasing Unit Costs,a Country Has