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Which of the following is a means through which a firm can generate a cost advantage?

1) Product differentiation
2) Economies of scale
3) Market segmentation
4) Customer loyalty

1 Answer

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Final answer:

A firm can generate a cost advantage through economies of scale, which allows for a reduced cost per unit as production volume increases, leading to a competitive edge in pricing or profit margins.

Step-by-step explanation:

Among the choices given, the means through which a firm can generate a cost advantage is economies of scale. Economies of scale occur when a firm achieves a lower cost per unit as it increases production. This cost advantage stems from the firm's ability to spread fixed costs over a larger number of units, negotiate for bulk discounts on materials, and optimize operations and supply chains for efficiency.

While product differentiation, market segmentation, and customer loyalty are important for a firm's strategy and can potentially lead to higher revenues or a premium pricing position, they are not directly related to cost advantages. Economies of scale can offer substantial competitive edge, allowing firms to offer competitive pricing or enjoy higher profit margins.

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