Which of the following helps firms achieve a competitive advantage in competitive markets?

• A. Restricting market entry for new competitors
• B. Setting prices above the equilibrium level
• C. Ignoring consumer preferences
• D. Lowering production costs through technological innovation

Answer: (D)

Verified step by step guidance

1. Understand the concept of competitive advantage: It refers to a firm's ability to produce goods or services more efficiently or with better quality than its competitors, allowing it to achieve higher profits or market share.
2. Analyze the options given in the problem: Restricting market entry, setting prices above equilibrium, ignoring consumer preferences, and lowering production costs through technological innovation.
3. Recall that in competitive markets, firms are price takers and cannot set prices above the equilibrium level without losing customers, so setting prices above equilibrium is not a sustainable competitive advantage.
4. Recognize that restricting market entry is generally not feasible in perfectly competitive markets because there are no significant barriers to entry; thus, it does not help firms achieve a competitive advantage.
5. Identify that lowering production costs through technological innovation reduces the firm's average cost curve, allowing it to produce at a lower cost than competitors, which is a key way to gain a competitive advantage in competitive markets.