Absolute Advantage Case Study

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Absolute advantage is when a country is capable of producing more of a certain type of output. An example of this would be that the U.S. might be able to produce 100,000 thousand of a specific vehicle to export, but China might only be able to produce 10,000 thousand. Comparative advantage is when a country can produce more of a certain type of output in relation all of the other things it produces. Another example, the U.S. and China might both be able to produce 5 thousand performance chips, but in relation to their other output China is producing 5/10,000 of salsa, and the USA is producing 5/100,000, so China has comparative advantage. If either the U.S. or China specialized in output production for which they have comparative advantage…show more content…
Following the coffee example earlier, a second cup of coffee in the morning after the first will provide additional desired gratification. Even so, this addition it will not provide near as much satisfied contentment (utility) as the first one did. The third cup has even less supplemental gratification or need meeting ability (utility) as the second and the first. In the beginning, some products or services may have some incrementing marginal utility; however, every service and goods at one time period will provide a decreasing supplemental utility (or diminishing marginal utility). When the total utility curve stops increasing at an increasing rate and starts increasing at a decreasing rate, which is the point where the marginal utility curve reaches its max and starts decreasing. This decrease is the point of diminishing marginal utility. 6. Explain the difference between diminishing returns and diseconomies of scale. What are the causes of each? Diminishing returns is when more of one input is integrated together, while on a different end, another input is held fixed, causing a diminishment of marginal product. Diseconomies of scale are when a firm doubles its inputs and output is…show more content…
In this scenario, positive instead of negative profits can exist, making it to where others cannot enter and obtain some of these profits because sharing the market means they have to enter at a smaller scale of operation and thus face higher average costs. 9. Explain why cartels are naturally unstable. Do these factors explain the decline of OPEC as an international cartel? Cartel-behavior by businesses is fixing prices which are prohibited by the law regarding competition. The reasoning for cartels being unstable is that many price fixing or market sharing agreements eventually collapse. Examples of these collapses are listed: • Firms that are not a cartel entering into the industry creates fresh competition which creates a disruption. • Government agencies have been especially active in trying to break down cartel behavior and tighten laws in order to bring exposure to price
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