Question

Explain how the threat of potential competition encourages firms to produce high-quality products and sell them at reasonable prices to consumers

Answer 1

Threat of potential competition encourageous firms to produce high quality products and sell them at reasonable prices to consumers.

The above statement is absolutely true. Because when there are the competition in the producers then the producers have the fear that if they do not sell a product at a low price then noone wouy purchase their products.

and it is only possible if there are the large amount of the producers in the market. At the same time they have to also produce high quality products in order to ensure that consumer buys only his product.

because when there are large numbers of producers the consumer have option to opt anyone of them and the consumable of the one whose quality is best and price is least.

That's why the perfect competition market provides the socially optimum level of price and output because of the competition among the producers.