What does a relative advantage allow a company to do in a competitive market?

In a competitive market, having a relative advantage enables a company to reduce production costs. When a firm can produce its goods or services more efficiently than its competitors, it can lower its overall cost structure. This cost reduction can result from several factors, such as economies of scale, superior technology, or more efficient supply chain management. By lowering production costs, a company can offer competitive pricing, which can lead to increased market share and customer loyalty. This strategic positioning is particularly crucial in industries where price sensitivity is high, allowing the company to maintain profitability while still attracting customers.

While options like increasing the advertising budget, enhancing product features, or expanding into new markets are all important strategies for growth and competition, they do not directly address the way in which relative advantage contributes to a company's operational efficiency and cost management. Therefore, the ability to reduce production costs is fundamental to leveraging a relative advantage in a competitive landscape.