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Correct Answer: absolute advantage
in the given scenario, we have two companies where the first company produces 2 million widgets per year, and the second company produces 3.5 million widgets in the same period. to determine which type of advantage the second company has over the first, it is crucial to understand the concepts of absolute advantage and comparative advantage.
absolute advantage refers to the ability of a party (a country, company, or individual) to produce more of a good or service with the same amount of resources, or the same amount with fewer resources, than another party. this concept focuses solely on the quantity of output from identical inputs. in our example, the second company produces 1.5 million more widgets than the first company using the same timeframe (which can be considered a fixed input for comparison). this indicates that the second company can produce widgets at a higher volume, suggesting it has an absolute advantage.
comparative advantage, on the other hand, involves a situation where a party can produce a good at a lower opportunity cost than another. this concept isn't directly relevant to the scenario provided because we do not have information about what each company could be producing instead of widgets, nor the costs associated with shifting production.
therefore, given that the second company produces more widgets than the first in the same amount of time, it has an absolute advantage. this is because it demonstrates a greater output capacity without additional information suggesting a different allocation or efficiency of resources. the conclusion is that the second company's higher production volume directly illustrates an absolute advantage over the first company.
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