Final answer:
Competing on cost involves being the low-cost producer for a given quality level, and it requires analyzing costs, sales, and market structure to choose the profit-maximizing production quantity. Hence, the correct answer is option (A).
Step-by-step explanation:
Competing on cost is concerned with achieving maximum value as perceived by the customer. This strategy is about becoming the low-cost producer in an industry for a certain level of quality. Firms can gain insights into maximizing profits by analyzing their cost structure, including fixed and variable costs and understanding their average total cost, average variable cost, and marginal cost.
Choosing the profit-maximizing quantity to produce involves not only cost evaluation but also an analysis of sales and revenue, as well as the market structure the firm operates in. Long-term production planning takes into consideration the firm’s ability to maintain a cost advantage over competitors, often through economies of scale, cost-saving innovations, and efficiency improvements.