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Cost Advantage Definition: Cost Advantage Meaning and its Importance

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by Beroe Inc,
4 November 2022

Cost Advantage Definition

The term "cost advantage" refers to a company's capacity to produce goods or services at a lower cost than its competitors. A company with a cost advantage is said to have a "competitive advantage." 

This advantage can be due to several factors, including technological superiority, access to cheaper inputs, or economies of scale, which means that the company can produce more output units at a lower cost per unit because of its size.

Cost advantage can also be developed by locating a company's production facilities in areas where labor and other production costs are lower. For example, a company that manufactures clothing might locate its factory in a country where labor costs are lower than in its home country.

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