If company A is better than company B at both producing T-shirts and at selling them retail, why might company A contract the first job to company B?

Question

Quizplus · Accepted Answer

Company A would contract the job to company B if company B has a comparative advantage. Assume that producing T-shirts is time-consuming and has a low profit margin. Company A might contract the work to company B so that it can focus on the more lucrative retail sales. Since company B is bad at both jobs, its opportunity costs are lower; these low opportunity costs are its comparative advantage.

If Company a Is Better Than Company B at Both