Multiple Choice
Which of the following is a risk (or potential pitfall) of pursuing cost leadership in a competitive market?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Which of the following is an advantage, independent of size, that incumbent firms possess in competitive markets?
A
Economies of scale
B
Established brand reputation
C
Lower average variable costs due to large output
D
Access to bulk purchasing discounts
Verified step by step guidance1
Understand the concept of 'incumbent firms' in competitive markets: these are firms that have been operating in the market for some time and have established themselves compared to new entrants.
Review the options given and identify which advantages depend on the size of the firm and which do not. For example, 'Economies of scale' and 'Lower average variable costs due to large output' are advantages that depend on the firm's size.
Recognize that 'Access to bulk purchasing discounts' also typically depends on the firm's size because larger firms can buy inputs in larger quantities at lower prices.
Focus on the option 'Established brand reputation' as an advantage that does not depend on the firm's size but rather on its history and recognition in the market, which can help maintain customer loyalty and trust.
Conclude that the advantage independent of size that incumbent firms possess is their 'Established brand reputation' because it is based on their presence and recognition in the market rather than their scale of operations.
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