In the context of microeconomics, what occurs when a firm's static fit no longer matches competitive realities?

• A. The firm experiences strategic drift and may lose its competitive advantage.
• B. The firm becomes more efficient without changing its strategy.
• C. The firm automatically increases its market share.
• D. The firm is guaranteed to achieve long-term profitability.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a firm's 'static fit,' which refers to how well a firm's current strategy aligns with the external competitive environment and market conditions.
2. Recognize that when a firm's static fit no longer matches competitive realities, it means the firm's strategy is outdated or misaligned with changes in the market, technology, consumer preferences, or competitor actions.
3. Analyze the consequences of this misalignment: the firm may experience 'strategic drift,' a gradual failure to respond effectively to external changes, leading to a loss of competitive advantage.
4. Note that strategic drift does not automatically improve efficiency, increase market share, or guarantee long-term profitability; instead, it often results in declining performance unless the firm adapts its strategy.
5. Conclude that the key implication is the need for the firm to reassess and realign its strategy with the current competitive environment to regain or maintain its competitive advantage.