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Various economic analyses could be used while
considering whether or not to start up a business.
For example, if the existing music stores in your city
are profitable, and you have enough money to start
your own music store, should you do it? ---- In
addition, your costs may be higher than the costs of
the stores that are already established. It would be
sensible to enter the market only if you expected a
small drop in price and only a slightly bigger
difference in cost.
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There is still the risk that the existing stores may try to protect their market shares by increasing their advertising. |
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If you enter this market, the competition among the stores for customers will increase, leading to lower prices for CDs. |
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As workers, we use such an analysis to decide how to produce goods and services, how much to produce, and how much to charge for them. |
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Indeed, entering what appears to be a profitable market may sometimes turn out to be a financial disaster for the investors. |
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Producers and consumers are free to adapt their activities to changes in market conditions and relative prices. |