Which of the following does the Five Forces Model help firms do?

• A. Analyze the competitive environment and determine industry profitability
• B. Determine the equilibrium price in a perfectly competitive market
• C. Set government fiscal policy
• D. Calculate consumer utility maximization

Answer: (A)

Verified step by step guidance

1. Understand that the Five Forces Model, developed by Michael Porter, is a framework used to analyze the competitive forces within an industry.
2. Identify the five forces: (1) Threat of new entrants, (2) Bargaining power of suppliers, (3) Bargaining power of buyers, (4) Threat of substitute products or services, and (5) Industry rivalry among existing competitors.
3. Recognize that by examining these forces, firms can assess the intensity of competition and the potential profitability of the industry they operate in.
4. Note that the model is not designed to determine equilibrium prices, set government fiscal policy, or calculate consumer utility maximization, as these belong to other areas of microeconomic analysis.
5. Conclude that the primary use of the Five Forces Model is to help firms analyze their competitive environment and determine industry profitability.