Suppose Country A had been traditionally enjoying a comparative advantage in the production of Good X. As a result, most of the large firms manufacturing and exporting Good X were concentrated in Country A. However, recently it has been observed that the comparative advantage in the production of Good X has shifted to Country B owing to better factor availability and lower input prices. Some new firms are contemplating to start operating in Country B. Which of the following, if it happens, makes it more likely that the new firms in Country B will not be able to operate profitably?
A. The demand for Good X increases substantially in Country A in the near future.
B. The firms in Country A lower the prices for their products.
C. The input prices in Country A increase significantly in the near future.
D. The firms in Country A expand production beyond the optimum point and will experience an increase in per unit cost with a further increase in output.
Answer: B
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