In the context of competitive markets, the key question of where to compete is addressed by:

• A. setting prices below marginal cost to drive out competitors
• B. ignoring consumer preferences and focusing solely on cost minimization
• C. maximizing production regardless of market demand
• D. analyzing market structure and identifying segments with the greatest profit potential

Answer: (D)

Verified step by step guidance

1. Understand the context of competitive markets, where firms aim to maximize profits by making strategic decisions about where to compete.
2. Recognize that setting prices below marginal cost is generally not sustainable in competitive markets because it leads to losses and is not a long-term strategy.
3. Acknowledge that ignoring consumer preferences is counterproductive since consumer demand drives market success; cost minimization alone is insufficient without considering demand.
4. Note that maximizing production without regard to market demand can lead to excess supply and losses, so production decisions must align with demand conditions.
5. Conclude that the key to deciding where to compete involves analyzing the market structure and identifying market segments that offer the greatest profit potential, balancing costs, demand, and competitive dynamics.