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 relative opportunity costs, not just low labor costs. Local firms may have other advantages such as better understanding of the market or lower transportation costs.

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