Why is the threat from rivals considered a significant concern in economics?

• A. It ensures that prices will always remain above equilibrium levels.
• B. It eliminates the need for firms to innovate or improve efficiency.
• C. It can lead to decreased market share and lower profits for existing firms.
• D. It guarantees that all firms will earn economic profits in the long run.

Answer: (C)

Verified step by step guidance

1. Understand that in economics, rivals or competitors in a market influence the behavior and performance of firms.
2. Recognize that the presence of rivals creates competitive pressure, which can affect a firm's market share and profitability.
3. Analyze how increased competition can lead to a reduction in prices or force firms to improve products and reduce costs to maintain their position.
4. Note that this competitive pressure can decrease the market share of existing firms if rivals attract customers away.
5. Conclude that the threat from rivals is significant because it can lead to lower profits and challenges in maintaining a dominant position in the market.