Multiple Choice
In a competitive market, when is it most beneficial for a firm to attempt to match its competitor's value proposition?
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3. The Market Forces of Supply and Demand
Competitive Markets
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In a competitive market, a low-cost leader's basis for competitive advantage is:
A
differentiating products through unique features
B
charging the highest possible price
C
restricting output to increase market price
D
producing at a lower average cost than rivals
Verified step by step guidance1
Understand the concept of a low-cost leader in a competitive market: this firm gains advantage by minimizing production costs compared to its competitors.
Recognize that differentiating products through unique features relates to product differentiation, which is a different competitive strategy, not cost leadership.
Note that charging the highest possible price is not consistent with a low-cost strategy, as low-cost leaders typically compete by offering lower prices.
Restricting output to increase market price is a strategy associated with firms having market power or monopolistic tendencies, not perfectly competitive low-cost leaders.
Conclude that the basis for competitive advantage for a low-cost leader is producing at a lower average cost than rivals, allowing the firm to sustain profitability even with lower prices.
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