In a competitive market, a firm is likely to have a competitive advantage when it:

• A. produces at a lower average cost than its rivals
• B. sets prices above the market equilibrium
• C. ignores consumer preferences
• D. faces higher barriers to entry than other firms

Answer: (A)

Verified step by step guidance

1. Understand the concept of competitive advantage in microeconomics: it refers to a firm's ability to produce goods or services at a lower cost or with better quality than its competitors, allowing it to earn higher profits or capture more market share.
2. Analyze each option in the context of a competitive market: - Producing at a lower average cost than rivals means the firm can offer lower prices or enjoy higher margins, which is a classic source of competitive advantage. - Setting prices above the market equilibrium is not sustainable in a competitive market because consumers will buy from other firms offering lower prices. - Ignoring consumer preferences typically leads to losing customers, which is not advantageous. - Facing higher barriers to entry usually affects new firms trying to enter the market, not the competitive advantage of an existing firm.
3. Recall that in perfect competition, firms are price takers and cannot set prices above equilibrium; thus, pricing above equilibrium is not a source of advantage.
4. Recognize that competitive advantage is closely linked to cost efficiency, so producing at a lower average cost than rivals allows a firm to survive and thrive in a competitive market.
5. Conclude that the correct condition for a firm to have a competitive advantage is when it produces at a lower average cost than its rivals.