Final answer:
A firm may refrain from competing as hard as possible if they feel that their rivals are doing the same. This is likely to occur in a situation of perfect competition, where there are many tough competitors who are trying to sell to the same customers.
Step-by-step explanation:
A firm may refrain from competing as hard as possible if they feel that their rivals are doing the same. This is likely to occur in a situation of perfect competition, where there are many tough competitors who are trying to sell to the same customers. In such a scenario, a firm may choose to limit its competition to avoid a price war or potential loss of customers.
For example, imagine a market with multiple airlines offering similar flight routes. If one airline were to significantly lower their prices, other airlines would likely follow suit to remain competitive. This could lead to reduced profits for all the airlines involved, as they would have to sell tickets at lower prices.
In summary, a firm is likely to refrain from competing as hard as possible when there are many tough competitors in a market, leading to perfect competition and the potential for reduced profits for all firms involved.