Final answer:
Firms use the five forces model of competition to analyze the level of competition and attractiveness of an industry.
Step-by-step explanation:
The five forces model of competition is used by firms to identify the level of competition and attractiveness of an industry. It helps firms understand the dynamics of the market they operate in and make strategic decisions. The five forces in the model are:
- Much market power does each firm in the industry possess?
- How similar is each firm's product to the products of other firms in the industry?
- How difficult is it for new firms to enter the industry?
- Do firms compete on the basis of price, advertising, or other product differences?
By analyzing these forces, firms can identify potential threats and opportunities and develop strategies to compete effectively.