Final answer:
Strategy formulation in business involves managerial decisions on product offerings, production processes, output levels, pricing, and labor employment. These decisions depend on market structure variables such as competition, market power, product uniqueness, and barriers to entry. In perfectly competitive markets, firms primarily focus on output quantity, while firms with more market power must navigate a broader range of strategic choices.
Step-by-step explanation:
In a strategy formulation, managers focus on deciding HOW the firm should compete. They must consider several critical questions: What product or products should the firm produce? How should the firm produce the products, meaning what production process should be used? How much output should the firm produce, at what price, and how much labor should the firm employ? Answering these questions requires an understanding of the market structure and production and cost conditions specific to each firm.
The market structure encompasses various elements such as the degree of competition in the industry, the market power of individual firms, the uniqueness of products across different companies, and the barriers to entry for new firms. In perfectly competitive markets, a firm's decision mainly focuses on the quantity of output produced, as the prices are determined by market forces. On the other hand, firms in less competitive markets with more market power have different strategic decisions to make, including pricing and innovation strategies.