Question
In: Finance
8. How does an industry cost curve provide information about the potential attractiveness of a sector?
8. How does an industry cost curve provide information about the potential attractiveness of a sector?
Solutions
Expert Solution
Answer: It is graph that defines the relationship between the products available capacity at a given particular cost per unit. This curve is really helpful in analyzing the pricing trends and its dynamics prevailing in a sector. Based on this a Company can take its strategic decisions regarding capacity and production.
According to this Higher costs production will be phased out from the market. So in a sector if costs are low and the existing companies are not able to meet demand then it means that sector is ripe for new market entrants.
It Plays an important role in figuring out the impact of the capacity, shifts in Demand and input costs have on the prices a company can command in the market for their services. Higher Negotiating power over prices and high demand of the product which existing companies are not able to fill, points to an attractive sector to enter for a Company
Through all this it helps to let us know the attractiveness of a particular sector.
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