Question

What theory implies that you should allow another firm to perform work activities for your company if that company can do it more productively than you can?
a.theory of core competencies
b.theory of comparative advantage
c.theory of competitive advantage
d.theory of offshoring
e.theory of outsourcing

Answer 1

Answer:

b.theory of comparative advantage

Explanation:

Comparative advantage theory uses the concept of opportunity cost to measure the efficiency of each firm in producing a good or service. If Company A has a higher opportunity cost than Company B in producing a service, it is best to let Company B perform this service, while A must specialize in another activity. This may apply to companies that have the option of producing components of their final product or outsourcing these components. If the opportunity cost of a third party firm is lower, that firm will be more efficient in producing that component. Then the company can use its time and resources for other activities and purchase the outsourced firm's component. This way, the firm will be allowing another company to do part of the business because that other company is more productive in that particular service.