To maximize profitability and competitiveness, firms must:

• A. focus solely on increasing production regardless of market demand
• B. avoid innovation and maintain traditional business practices
• C. ignore cost structures and set prices arbitrarily
• D. efficiently allocate resources to produce goods and services that meet consumer demand

Answer: (D)

Verified step by step guidance

1. Understand the goal of firms in microeconomics: to maximize profitability and remain competitive in the market.
2. Recognize that focusing solely on increasing production without considering market demand can lead to excess supply and losses.
3. Acknowledge that avoiding innovation and sticking to traditional practices may cause firms to fall behind competitors who adapt to changing consumer preferences.
4. Realize that ignoring cost structures and setting prices arbitrarily can result in unprofitable pricing strategies and inefficient resource use.
5. Conclude that the correct approach is to efficiently allocate resources to produce goods and services that meet consumer demand, balancing production with market needs and cost considerations.