Your answer would be Producers cannot make a profit if they keep dropping their prices.
The correct answer is: "Producers cannot make a profit if they keep dropping their prices".
Purely competitive markets are characterized by homogenous products, all the producers involved in the industry commercialize the same good with identical features. Therefore, product differentiation is not a valid competitive strategy and firms can only make their products more attractive to consumers by charging a lower price than the one charged by their competitors (competition in prices). Producers keep on redesigning their production processes, aiming to turn them more efficient so that cost reductions can be achieved and, in turn, the price charged for the goods in the market can be decreased.
Producers keep on reducing their prices to compete with each other and, as more price reductions are required, firms would end up being forced to reduce profit margins too (difference between the price charged per unit and the cost per unit). When the profit earned per unit decreases, so do total profit levels obtained by the firm.
