Final answer:
The statement that firms with strong sales can eliminate new-product development to reduce expenses is false. Even with falling average total costs, market competition necessitates ongoing innovation to maintain profitability and growth in the long term.
Step-by-step explanation:
The statement "Firms marketing a quality product that generates strong sales can afford to keep expenses down by eliminating new-product development" is false. An innovative firm knows that market competition can incentivize the discovery of new technology and the development of new products. Firms experiencing falling average total costs, often due to industry-wide improvements in technology or higher employee education, may actually find themselves in a position to invest more in innovation. As market competition increases, and businesses are faced with the prospect of competitors with better or cheaper products, the need for relentless pursuit of new innovation is crucial for maintaining an edge and securing above-normal profits, as stated by Gregory Lee, CEO of Samsung.
In a decreasing cost industry, firms benefit from economies of scale as the market expands, leading to lower production costs. Nonetheless, they must continue to innovate to keep up with competitors and the ever-changing technological landscape. Far from eliminating the need for product development, success in sales and reduced costs provide the financial means to invest in future innovations which are essential for long-term success.