When the costs of supplies increase in an industry,the low-cost leader may:
A) continue competing with rivals on the basis of product features.
B) lose customers as a result of price increases.
C) make it difficult for new entrants to the industry to achieve above-average returns.
D) be the only firm able to pay the higher prices and continue to earn average or above-average returns.

Question

Quizplus · Accepted Answer

As the low-cost leader, this firm likely has the lowest cost structure compared to its rivals, which means its profit margins are the highest. If the costs of supplies increase industry-wide, this may cause some of the low-cost leader's competitors to struggle to maintain their profit margins, potentially forcing them out of business or reducing competition. Because the low-cost leader already has the lowest cost structure, it may be better able to absorb the cost increases without significantly impacting its margins. As a result, it may be one of the only firms able to continue earning average or above-average returns despite the higher costs of supplies.

When the Costs of Supplies Increase in an Industry,the Low-Cost