Explain three types of production cost

      

Explain three types of production cost.

  

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Simon
• Absolute cost differences. Adam Smith stated that international trade is beneficial to the trading countries if they enjoy absolute cost differences in the cost of production of the commodity which they specialize. In this case, each country is supposed to specialize in production of commodities which absolute cost advantage, so each country specializes in production of goods based on absolute advantages.
• Equal cost difference. Adam Smith also pointed out that trade is not possible if countries operate under equal difference in cost.
• Comparative cost difference. David Ricardo argued that even if a country has an absolute cost advantage in production of both commodities, it is beneficial for that country to specialize in the production of the commodity it has a greater comparative advantage.

skilled writter answered the question on April 26, 2018 at 16:57


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