Final answer:
The statement that lower profit margins from increased competition would result in lower external funding needs is false. Increased competition often requires businesses to invest more to stay competitive, leading to a potential increase in the need for external funds. Option B is correct.
Step-by-step explanation:
The standard claim is that 'lower profit margins resulting from increased competition would mean a lower need for external funds.' However, this statement is False. When competition increases leading to lower profit margins, businesses often need to invest more in research and development (R&D), marketing, and other strategic initiatives to differentiate themselves and regain or maintain market share. If internally generated funds are insufficient due to lower profits, companies may indeed have a higher need for external financing to cover these investments and compete effectively. The model of perfectly competitive firms suggests that businesses that consistently lose money will exit the market. The added financial strain of competition may drive them to seek additional funding sources to stay afloat and avoid being part of the considerable number of firms that exit annually.
However, this means that the business will need more funds to cover its expenses and investments. For example, it may need to invest in marketing, product development, or improving its operations to regain its competitive edge. Therefore, the statement 'Lower profit margins resulting from increased competition would mean a lower need for external funds' is incorrect.