posted on Jan, 6 2014 @ 11:20 PM
reply to post by RobFox
All of these answers can be found through an intermediate microeconomics course. The profit that a firm can make depends on a few different general
concepts (and a lot of specifics that this post won't be able to adequately address due to level of detail involved): 1) demand, 2) supply, 3)
elasticity, and 4) the type of firm that the entrepreneur hopes to establish.
Put very simply, demand and supply allow a firm to calculate the price that can be charged for a good or service when taking into account the economic
and implicit costs needed to produce a given good or service. Elasticity describes how a change in price, income, the price of another good or supply
affect the demand for the good in question. The type of firm that the entrepreneur create determines the amount of economic profit that the firm can
predictably earn based on market competition. In a perfectly competitive market, each firm produces similar profits, there are no entry or exit
barriers, and firms break even. These firms are called price takers because the price of a good is determined by the market. Any firm that charges a
price higher than market price will have a demand of zero for their good or service. On the other end of the extreme, monopolistic competition
describes production of a good or service for which significant and costly barriers to entry exist. The most common form of entry barrier is
technology in the form of patents. These firms can charge significantly more for their products and the amount of market control (I.e. The percentage
mark-up over perfectly competitive market prices) can be calculated through the Lerner index. There are also duopolies, oligopolies, and competitive
markets for firms that fall somewhere in the middle of the two extremes. Your profit depends on all of these factors (among many others).
Economic loss is never a good thing, and there are ways to determine whether the firm should continue operating, even if loss is occurring in the
short run. However, owning your own business can be advantageous for many reasons, so if you are thinking about starting your own, you should
definitely become familiar with microeconomics and public finance.
This doesn't answer all of your questions, but it should give you a good starting point to begin familiarizing yourself with some important concepts.