In a market characterized by pure competition, which strategy can a company use to differentiate itself and potentially exit the purely competitive environment?

• A. Lower prices below marginal cost to drive out competitors
• B. Rely solely on government subsidies to maintain profitability
• C. Develop a unique product or brand to create market power
• D. Increase production to achieve economies of scale

Answer: (C)

Verified step by step guidance

1. Understand the characteristics of a purely competitive market: many firms, identical products, and no single firm can influence the market price.
2. Recognize that in pure competition, firms are price takers and cannot differentiate their products because all goods are perfect substitutes.
3. Identify that to exit the purely competitive environment, a firm must create some form of market power, which typically involves product differentiation or branding.
4. Evaluate the given strategies: lowering prices below marginal cost is unsustainable, relying solely on subsidies is not a market strategy, and increasing production affects cost but not product uniqueness.
5. Conclude that developing a unique product or brand is the viable strategy to differentiate and gain some control over price, thus moving away from pure competition.