It is not as if certain branches of industry yield more return than others . This is on account of the investors . After all , virtually every business needs capital : for machines , for research or for day-to-day operational management . Aside from banks and the entrepreneurs directly , it is professional investors and - in the case of listed businesses - large groups of private investors who price
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strengthen that capital . As soon as a branch of industry appears to yield a more favourable return on the invested capital in the long term , more investors will plough their money into this . This supply of capital will cause that branch of industry to grow , as a result of which prices , and with that the profit margins , will fall .
A possible answer to the question on how to derive profit is offered by elementary microeconomic theory . This concerns the demand curve for a product or service . If the price is high , the quantities sold will be small , and if the price is low , more products or services will be sold . This relationship is called the demand curve .
In a situation with competitors where everyone sells more or less the same product , you have to go along with the others . Because if your prices are higher than those of your competitor , everyone will go to him , and if your prices are lower you will deprive yourself and the competitor may also lower his prices . The price multiplied by the numbers sold is your turnover , and if you deduct your costs from that you are left with a ( small ) profit , as demonstrated in the first diagram of Figure 2 . This typically applies to raw materials such as pig iron and diesel , objects such as lighters and cotton wool , and services provided by hairdressers , smaller restaurants and cleaning companies .
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monopoly
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monopoly with skimming the market
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Figure 2 . The effect of the demand curve with competition and in a monopoly
If you are selling a unique product , or if you know of another way to ensure customers choose you instead of your competitor , you will have a kind of monopoly . In that case , you are free to determine at which price you wish to sell your product . That price comes with a certain demand , which is how you can optimise your profits ( second diagram ). If you start off with a higher price and then slowly bring it down , you can make an even bigger profit . This is known as skimming the market ( third diagram ). Apple sold the first iPhone for approximately 300 dollars , and then graduately lowered the price .
So it is vital to distinguish yourself from the competition , in other words , to create a small monopoly . This principle is described by W . Chan Kim and Renée Mauborgne in their book Blue Ocean Strategy 3 . Instead of competing on existing markets , the so-termed ' red oceans ' where sharks fight each other for every morsel of food , you should find yourself a piece of blue ocean without competitors , and build up your business there . They propose a practical method whereby - assuming an existing product or service - you can look at which aspects you
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