Final answer:
The correct option is B. Internal analysis is the right answer and helps firms identify potential sources of competitive advantage by assessing internal resources and capabilities. It is also associated with dynamic comparative advantage and marginal analysis.
Step-by-step explanation:
The correct response to the student's question is B) internal analysis. Internal analysis is crucial for firms to assess their resources and capabilities in order to identify potential sources of competitive advantage. This process allows firms to determine which aspects of their operations can be leveraged to gain an edge over competitors. Internal analysis includes evaluating a company's strengths and weaknesses, resource allocation, and operational efficiency.
Furthermore, internal analysis aligns with the concept of dynamic comparative advantage, which recognizes that a firm's strengths might change over time due to factors like innovation or the acquisition of new resources. It also underpins why a firm might engage in marginal analysis to weigh the costs and benefits of different strategic decisions and choose the most efficient use of resources.