Please respond to the post below as a peer.
If there is another producer who can manufacture the same item at a lower cost, the producer that uses high costs to make a good will be the first to be eliminated from the market. The low-cost producer will simply lower the price and drive away the high-cost manufacturer, or if the high-cost producer decides to stay in the market in the near term, he will lose money. Second, in the event of an oligopoly, a high-cost manufacturer cannot be the market leader or cut the price of his product to keep competitors out of the industry. He will, sooner or later, lose market share.
A low-cost producer gets an extremely narrow profit margin. The low-cost manufacturer will suffer capital constraints if a new technology is introduced or if an investment is made. His margin is minimal if he doesn’t raise the price, but if he does, he will draw additional businesses to the market, eroding his market share. He would have to negotiate on the product’s quality, which will be detrimental in the long term.
reference
Kenton, W. (2021, September 13). Understanding low-cost producers. Investopedia. Retrieved April 4, 2022, from https://www.investopedia.com/terms/l/low-cost-producer.asp#:~:text=A%20low%2Dcost%20producer%20is%20a%20company%20that%20uses%20economies,items%2C%20food%2C%20and%20beverages.
Mangelsdorf, M. E. (1987, December 1). High-cost producer in a low-cost world. Inc.com. Retrieved April 4, 2022, from https://www.inc.com/magazine/19871201/3641.html
Thomas, C. R. (2020). Managerial economics : foundations of business analysis and strategy. Mcgraw-Hill Education.
