Which of the following best explains why firms may choose to internationalize in order to earn higher margins and profits?

• A. Access to larger markets and lower production costs can increase profitability.
• B. Internationalization always eliminates competition in domestic markets.
• C. Firms can avoid all government regulations by operating internationally.
• D. Internationalization guarantees higher prices for all products.

Answer: (A)

Verified step by step guidance

1. Understand the concept of internationalization: Firms expand their operations beyond domestic borders to access new markets, resources, or cost advantages.
2. Recognize that accessing larger markets allows firms to increase sales volume, which can lead to economies of scale and higher total profits.
3. Identify that lower production costs in some countries (due to cheaper labor, materials, or more efficient processes) can reduce overall costs and increase profit margins.
4. Evaluate the incorrect options: internationalization does not always eliminate domestic competition, nor does it allow firms to avoid all government regulations, and it does not guarantee higher prices universally.
5. Conclude that the best explanation is that access to larger markets combined with lower production costs can increase profitability, which motivates firms to internationalize.