Final answer:
The product life cycle concept indicates that products typically go through stages that lead to both sales and profits eventually declining due to market saturation and competition.
Step-by-step explanation:
The product life cycle concept suggests that products go through different stages, starting with development, moving into growth, maturing into a period of stability, and eventually declining. This is supported by the understanding that as markets become saturated and competition intensifies, it becomes harder to maintain high sales and profits. Therefore, the notion that both sales and profits will ultimately decline reflects the typical pattern observed in the lifespan of a product. In the beginning, a product may experience rapid growth in sales and profits as it gains market acceptance. Over time, competition may introduce better or less expensive products, leading to more options for consumers and sometimes lower costs of production. However, this competition and market saturation often lead to reduced sales for older products and a decrease in profits as well.
In the long run, as with perfectly competitive firms, those in a decreasing cost industry might experience lower costs of production as the industry expands, potentially leading to lower prices and potentially to a new zero-profit equilibrium. Additionally, continual innovation and product improvements are necessary to stay competitive, contributing to the constant evolution of products and the inevitability of product obsolescence. This ongoing cycle means that firms must plan for the decline in both sales and profits as part of their business strategy.