In a competitive market, if your company increases its market penetration, which of the following is most likely to occur?

• A. Your company's market share increases, but overall market prices remain largely unchanged due to competition.
• B. Your company can set higher prices without losing customers.
• C. The market becomes a monopoly controlled by your company.
• D. Barriers to entry for new firms increase significantly.

Answer: (A)

Verified step by step guidance

1. Understand the nature of a competitive market: In a perfectly competitive market, many firms sell identical products, and no single firm can influence the market price significantly.
2. Analyze what happens when one company increases its market penetration: This means the company sells more relative to its competitors, increasing its market share.
3. Consider the effect on market prices: Because the market is competitive, other firms will respond to changes in quantity supplied, keeping prices stable overall. Hence, the overall market price remains largely unchanged.
4. Evaluate the possibility of setting higher prices: In a competitive market, if one firm raises prices above the market level, customers will switch to competitors, so the firm cannot set higher prices without losing customers.
5. Assess the likelihood of monopoly or increased barriers to entry: Increasing market share alone does not create a monopoly or significantly raise barriers to entry in a competitive market, as many firms can still enter and compete.