If a firm wants to develop a sustainable competitive advantage in a competitive market, it should:

• A. Rely solely on government subsidies to maintain profitability
• B. Increase prices above the market equilibrium to maximize short-term profits
• C. Differentiate its products or services in a way that is difficult for competitors to imitate
• D. Ignore consumer preferences and focus only on reducing costs

Answer: (C)

Verified step by step guidance

1. Understand the concept of sustainable competitive advantage: it refers to a firm's ability to maintain an edge over competitors in the long run, making it difficult for others to replicate or surpass its position.
2. Analyze why relying solely on government subsidies is not sustainable: subsidies can be temporary and subject to policy changes, so depending on them does not create a lasting competitive edge.
3. Consider the implications of increasing prices above market equilibrium: in a competitive market, this typically leads to loss of customers to competitors, reducing long-term profitability.
4. Evaluate the strategy of ignoring consumer preferences and focusing only on cost reduction: while cost efficiency is important, neglecting consumer needs can reduce demand and market share.
5. Recognize that differentiating products or services in a way that is difficult to imitate creates unique value for customers, allowing the firm to maintain a competitive advantage sustainably.