If Canada has a comparative advantage relative to Mexico in the production of timber, then
A)the explicit cost of production for timber is lower in Canada than in Mexico.
B)the opportunity cost of production for timber is lower in Canada than in Mexico.
C)the implicit costs of production for timber are higher in Canada than in Mexico.
D)the average cost of production for timber is lower in Canada than in Mexico.

Question

Quizplus · Accepted Answer

Comparative advantage is based on the concept of opportunity cost, which is the cost of one good in terms of the forgone production of another good. If Canada has a comparative advantage in the production of timber, it means that for a given amount of resources or inputs, Canada can produce more timber than Mexico. Therefore, the opportunity cost of producing timber is lower for Canada than for Mexico. In other words, if both countries allocate their resources efficiently, Canada should specialize in timber production and export timber to Mexico, while Mexico should specialize in producing goods in which it has a comparative advantage over Canada. This would result in mutual gains from trade and a more efficient allocation of resources.

If Canada Has a Comparative Advantage Relative to Mexico in the Production