Multiple Choice
Based on the table showing total cost and total revenue for a competitive firm, at which output level does the firm maximize its profit?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
In a competitive market, competitive advantage goes to the firm that achieves the:
A
lowest average cost of production
B
most expensive advertising campaign
C
highest level of government regulation
D
largest number of employees
Verified step by step guidance1
Understand the concept of competitive advantage in microeconomics: it refers to the ability of a firm to produce goods or services at a lower cost or with better quality than its competitors, allowing it to earn higher profits or gain market share.
Recall that in a competitive market, firms compete primarily on price and efficiency, since products are often similar and consumers are price-sensitive.
Recognize that the lowest average cost of production means the firm can produce each unit at a cheaper cost than others, enabling it to offer lower prices or enjoy higher profit margins.
Evaluate the other options: a more expensive advertising campaign, higher government regulation, or a larger number of employees do not necessarily lead to a competitive advantage in a perfectly competitive market, where price and cost efficiency are key.
Conclude that the firm with the lowest average cost of production achieves the competitive advantage because it can sustain profitability and compete effectively on price.
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