Which of the following best defines a cost leadership strategy in economics?

• A. A strategy that relies on frequent product innovation to stay ahead of competitors.
• B. A strategy where a firm aims to become the lowest-cost producer in its industry.
• C. A strategy focused on offering unique products that command a premium price.
• D. A strategy that targets a narrow market segment with specialized products.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand that a cost leadership strategy is a competitive approach where a firm seeks to become the lowest-cost producer in its industry, allowing it to offer products at lower prices or achieve higher margins.
2. Step 2: Recognize that this strategy contrasts with others such as differentiation (offering unique products) or focus strategies (targeting narrow market segments).
3. Step 3: Identify that cost leadership involves optimizing production processes, achieving economies of scale, and minimizing costs in areas like labor, materials, and overhead.
4. Step 4: Note that frequent product innovation or targeting niche markets are not characteristics of cost leadership but rather relate to differentiation or focus strategies.
5. Step 5: Conclude that the best definition of cost leadership is the strategy where a firm aims to become the lowest-cost producer in its industry.