Question

Outline 2 ways in which price competition can influence a firms productivity

Answer 1

Price competition can influence a firms productivity by following two ways:-

Increase in price:- When the prices for a particular product increases then the person will start thinking about the cost that they need to buy that product. So in this case the firm production will decrease as per the product demand in the market.

Decrease in price:- Sometimes it happens that there will be huge fall in the price of a particular product where there is a competition between the prices to get maximum profit. So in that case product demand increases due to low cost and firm productivity starts increasing as per the product demand.

So on the basis of above explanation we can say that firm productivity depends upon the price competition as well as product demand. A price competition is the main factor to influence the product demand which will directly effect the firm productivity. But this can be vice-versa as well sometimes it happens that increase in demand raises the market prices.