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There is an inherent complex interrelationship in the production process and profit of industries within an economy. In other words, a demand for a particular good or service does not just influence the supply of that good or service. However, there are many circles of secondary demand that are created because of the inter dependencies between industries. For example, there is an increased demand for corn flour in households. Corn flour is a product of the agricultural sector. An increase in the demand for cornflour will create more demand for fertilizers and pesticides, tractors and other technology used for irrigation and transport. Another circle of demand is created for fuel and crude oil. And in this manner a simple increase in consumer demand can create circles of secondary demand. A firm will therefore not just consider the firm level factors that affect production, but will also take into consideration, the economy level factors and the industry level factors that affect the profitability of production.
A firm's profitability is affected by the following factors:
1) THE ECONOMY OF THE COUNTRY: Macroeconomic indicators are those including Gross National Product and Growth Rate of the industry, the price levels, the interest rates charged by banks for short-term loans, the level of exports and imports and the exchange rate.These factors can be advantageous or disadvantages to the firm..
2) THE INDUSTRY: A firm's profitability is affected by the industry in which it belongs to. The factors that go to affect are the emergence of substitute commodities, an increased gap in the demand-supply condition for the product and last but not the least, the Government's policy of restraining or encouraging the industry.
3) THE FIRM: A firm's profitability also rests with the factors that are specific to the firm. These include, the brand image that the firm has, expert management and so on The returns to variable factors employed by the firm determines the firm's profitability in the short run. In the long run, the level of technology and the returns to scale determine the level of profitability of the firm. An firm will have a higher profitability potential with the judicious and efficient use of the factors of production.
An increase in demand for mobile phones and laptops by the consumers, may just about create secondary demand circles for online purchases, online banking and insurance services, and online travel booking services. This may lead to an overall increase in production of firms in the agricultural sector, the manufacturing sector and also the services sector of the economy.
There is an inherent complex interrelationship in the production process and profit of industries within an economy. In other words, a demand for a particular good or service does not just influence the supply of that good or service. However, there are many circles of secondary demand that are created because of the inter dependencies between industries. For example, there is an increased demand for corn flour in households. Corn flour is a product of the agricultural sector. An increase in the demand for cornflour will create more demand for fertilizers and pesticides, tractors and other technology used for irrigation and transport. Another circle of demand is created for fuel and crude oil. And in this manner a simple increase in consumer demand can create circles of secondary demand. A firm will therefore not just consider the firm level factors that affect production, but will also take into consideration, the economy level factors and the industry level factors that affect the profitability of production.
A firm's profitability is affected by the following factors:
1) THE ECONOMY OF THE COUNTRY: Macroeconomic indicators are those including Gross National Product and Growth Rate of the industry, the price levels, the interest rates charged by banks for short-term loans, the level of exports and imports and the exchange rate.These factors can be advantageous or disadvantages to the firm..
2) THE INDUSTRY: A firm's profitability is affected by the industry in which it belongs to. The factors that go to affect are the emergence of substitute commodities, an increased gap in the demand-supply condition for the product and last but not the least, the Government's policy of restraining or encouraging the industry.
3) THE FIRM: A firm's profitability also rests with the factors that are specific to the firm. These include, the brand image that the firm has, expert management and so on The returns to variable factors employed by the firm determines the firm's profitability in the short run. In the long run, the level of technology and the returns to scale determine the level of profitability of the firm. An firm will have a higher profitability potential with the judicious and efficient use of the factors of production.
An increase in demand for mobile phones and laptops by the consumers, may just about create secondary demand circles for online purchases, online banking and insurance services, and online travel booking services. This may lead to an overall increase in production of firms in the agricultural sector, the manufacturing sector and also the services sector of the economy.
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