chapter  1
28 Pages

What’s It All About?

Economics has several definitions of profit. 'Normal profit' is the amount of profit that is needed to keep resources in their present use in the long run. It is the reward to businesses that covers the risk of being in an industry. Economies of scale exist wherever proportionate increases in the amounts of inputs employed in a production process result in lower unit costs. Entry into industries that are capital or research or advertising intensive also requires a large-scale operation to give firms sufficient volumes over which to amortize the up-front costs. A feature of most software products is that the initial development costs are very high but, once developed, they can be copied and distributed at negligible cost and therefore late entry can be expensive. The Boston Consulting Group's (BCG) Strategic Environments Matrix says it is the nature of competitive advantage in an industry that determines which strategies are viable, which in turn determines the structure of the industry.