Final answer:
A firm's business model should include expected revenues and expenses, marketing strategy, and a description of the industry. This encompasses a range of strategic decisions including production processes, output levels, pricing, labor requirements, and considerations of the market structure and competitive dynamics.
Step-by-step explanation:
Three key components that should be included in a firm’s business model are the firm’s expected revenues and expenses, the firm’s marketing strategy, and a description of the industry the firm is entering. A comprehensive business model addresses several critical questions that inform the firm’s strategic direction and operational structures. Some of these questions are:
- What product or products should the firm produce?
- How should the firm produce the products, considering the production process?
- How much output should the firm produce?
- At what price should the firm charge for its products?
- How much labor should the firm employ to meet its production goals?
These decisions closely relate to the production and cost conditions unique to the firm as well as the overarching market structure in which the firm operates. Market structure includes dimensions such as:
- Market power of each firm in the industry
- Product differentiation among competing firms
- Barriers to entry for new firms
- Competitive strategies, including price, advertising, and product differences
The answers to these questions will determine the overall strategy and success of the firm in a competitive industry environment.