When the costs of supplies increase in an industry, the low-cost leader:
A) may continue competing with rivals on the basis of product features.
B) will lose customers as a result of price increases.
C) will be unable to absorb higher costs because cost-leaders operate on very narrow profit margins.
D) may 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 operates on very narrow profit margins, they may be the only firm able to pay the higher prices and still earn average or above-average returns. Their ability to do so can give them a competitive advantage over rivals who may struggle to maintain profitability with the increased costs. Therefore, option D is the best choice.

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