Select all that applyAttempts to use low-cost advantage to attack rival companies with lower product prices can result in which of the following?Multiple select question.reduced profitsretaliatory price cutsincreased production costsa price war among several rivals
Question
Select all that applyAttempts to use low-cost advantage to attack rival companies with lower product prices can result in which of the following?Multiple select question.reduced profitsretaliatory price cutsincreased production costsa price war among several rivals
Solution
The attempts to use low-cost advantage to attack rival companies with lower product prices can result in:
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Reduced profits: This can happen because in order to lower the product prices, the company might have to cut down on its profit margin.
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Retaliatory price cuts: This is a common reaction from rival companies. When they see a company lowering its prices, they might do the same to stay competitive, which can lead to a decrease in overall industry profits.
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A price war among several rivals: This is an extension of retaliatory price cuts. If one company reduces its prices, others might follow suit to stay competitive. This can lead to a situation where several companies are continuously lowering their prices, leading to a price war.
Increased production costs is not a direct result of using a low-cost advantage to lower product prices. However, if a company is not careful, it might end up increasing its production costs in an attempt to reduce product prices. For example, it might decide to produce in larger quantities to achieve economies of scale, but if the demand is not there, it might end up with a lot of unsold inventory, which can increase storage costs.
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