Price cutting in a competitive market will never lead to the creation of economic rents.

Question

Quizplus · Accepted Answer

Economic rents are typically defined as "excess profits" earned by a firm beyond what is necessary to keep the factors of production employed. In a competitive market, where there are many firms competing with each other, price cutting is often used as a strategy to gain market share or maintain existing customers. However, since all the firms are competing with each other, no firm is able to earn economic rents in the long run. Instead, price cutting in this context typically leads to lower profits for all firms, as they are all forced to lower prices in order to compete. Thus, price cutting in a competitive market is unlikely to lead to the creation of economic rents.

Price Cutting in a Competitive Market Will Never Lead to the Creation