Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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How can competition between organizations be described?

As a barrier to entry for new firms
As an incentive to innovate and improve services
As a fixed cost of doing business
As an irrelevant factor in a monopolistic market

The correct answer is: As an incentive to innovate and improve services

Competition between organizations can be described as an incentive to innovate and improve services because it drives firms to differentiate themselves from their competitors. In a competitive market, each organization must strive to offer better products, enhanced customer experiences, or lower prices to attract and retain customers. This constant pressure not only leads to innovation in terms of product development and service delivery but also pushes organizations to streamline operations and enhance efficiency to stay relevant. As a result, competition fosters a dynamic environment where creativity and improvement are essential for survival and success. This characteristic is fundamental in industries where consumer preferences constantly evolve and technological advancements rapidly change market landscapes.