Multiple Choice
In competitive markets, which type of supply process is typically characterized by a mature manufacturing and technology base?
84
views
3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
In a competitive market, a firm may set low prices primarily to achieve which of the following objectives?
A
Maximize short-run profits by raising prices above competitors
B
Discourage new firms from entering the market
C
Increase market share by attracting more customers
D
Reduce production costs through economies of scale
Verified step by step guidance1
Step 1: Understand the context of a competitive market where many firms sell similar products and no single firm can influence the market price significantly.
Step 2: Recognize that setting low prices can be a strategic decision rather than simply maximizing short-run profits, as raising prices above competitors usually reduces demand for the firm’s product.
Step 3: Analyze the objective of discouraging new firms from entering the market, which can be achieved by setting prices low enough to reduce potential entrants' expected profits, acting as a barrier to entry.
Step 4: Consider the goal of increasing market share by attracting more customers through lower prices, which can lead to higher sales volume and potentially greater long-term profits.
Step 5: Evaluate the option of reducing production costs through economies of scale, which is generally a result of increased output rather than a direct reason for setting low prices initially.
Related Videos
Related Practice
