In the context of market equilibrium, what is most likely to happen to a firm that continues to produce the same products in a saturated market?

• A. The firm's profits will likely decrease due to increased competition and limited demand.
• B. The firm will be able to set higher prices without losing customers.
• C. The firm will automatically gain a larger market share.
• D. The firm's products will become more valuable as supply increases.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of a saturated market, which occurs when the quantity of a product supplied meets or exceeds the quantity demanded, leaving little room for growth in sales volume.
2. Step 2: Recognize that in a saturated market, many firms offer similar products, leading to increased competition among them.
3. Step 3: Analyze how increased competition affects prices and profits. Typically, firms cannot raise prices without losing customers because consumers have many alternatives.
4. Step 4: Consider the impact on a firm's profits when demand is limited and competition is high. Profits tend to decrease as firms compete primarily on price or other non-price factors.
5. Step 5: Conclude that a firm continuing to produce the same products in a saturated market will likely see its profits decrease due to these competitive pressures and limited demand.