Why are some industries more profitable than other industries?

Skilled and knowledgeable workers. When entering an industry requires you to be an expert or have specialized education, there’s lower likelihood of new competitors. Less competition means you’ll spend less money retaining customers and you’ll keep more profits.

Why do competitive firms make zero profit?

In a perfectly competitive market, firms can only experience profits or losses in the short-run. In the long-run, profits and losses are eliminated because an infinite number of firms are producing infinitely-divisible, homogeneous products.

What is the importance of industry structure?

According to industrial economics, the structure of an industry influences both the rules of the competition and the strategies that are potentially available to the company to help it improve a weak competitive position or take advantage of a strong one.

Why do different industries have different profit margins?

Companies in the restaurant and foodservice industry, for example, typically have lower profit margins than other businesses due to greater expenses. Or other industries may tend to have higher profit margins due to having lower expenses.

How does competition influence a business?

Competition among companies can spur the invention of new or better products, or more efficient processes. Firms may race to be the first to market a new or different technology. Innovation also benefits consumers with new and better products, helps drive economic growth and increases standards of living.

Why do firms earn only normal profits under perfect competition in the long run?

Perfect competition in the long-run In perfect competition, there is freedom of entry and exit. If the industry was making supernormal profit, then new firms would enter the market until normal profits were made. This is why normal profits will be made in the long run.

Why a competitive firm Cannot earn abnormal profits in the long run?

This is because if any firm in the long run earns abnormal profits (that is price > minimum of average cost curve), then new firms are attracted into the market. Thus, in long run, under perfect competition, no firm can earn abnormal profits, rather earns zero economic profit.

How does the structure of the industry affect competitive forces in the industry?

Industry Structure is Dynamic Changes in regulation can change the intensity of rivalry, or affect barriers to entry. Choices by competition, such as new pricing or distribution approaches, can also affect the path of industry competition.

What is the analysis you do for the competition?

A competitive analysis helps you size up your competition by identifying their strengths and weaknesses. In order to know how receptive the market is to your business and what works or does not work, you have to understand how similar businesses are functioning.

What decisions can affect profit?

The number of production units, production per unit, direct costs, value per unit, mix of enterprises, and overhead costs all interact to determine profitability.

How does competition affect profitability?

If the market is very competitive, then profit will be lower. This is because consumers would only buy from the cheapest firms. Also important is the idea of contestability. If entry is easy then firms will always face the threat of competition; even if it is just “hit and run competition” – this will reduce profits.