Final answer:
The industrial organization model of above average return is a strategic decision-making model that focuses on external factors in an industry. It emphasizes analyzing industry structure, competitive forces, and economies of scale to achieve above-average returns.
Step-by-step explanation:
The strategic decision-making model known as the industrial organization model of above average return focuses on external factors that can lead to superior performance in an industry. This model suggests that to achieve above-average returns, a firm needs to analyze and understand the structure of the industry it operates in, the competitive forces at play, and the opportunities for differentiation and competitive advantage.
One key concept in this model is economies of scale, which refers to the cost advantages that a firm can achieve as it increases its production scale. As the scale of output goes up, average production costs tend to decline, allowing firms to lower their prices or increase their profit margins.
For example, consider a plant producing toaster ovens. If the plant increases its output from a small level to a medium level, it may experience a decrease in average production cost per unit, resulting in a more competitive pricing strategy.