Final answer:
Analysis of an industry's profit pool helps strategic managers allocate resources effectively by identifying where profits are made within the value chain. This involves understanding production costs, calculating average profits, and making strategic pricing and production decisions.
Step-by-step explanation:
Analysis of an industry's profit pool enables strategic managers to D) Allocate resources effectively. The profit pool concept refers to the total profits earned at all points along the value chain, and understanding it helps managers recognize where profits are being made and where they are not. By evaluating patterns of costs, such as fixed and variable costs along with average and marginal costs, managers can calculate average profit, and subsequently, make strategic decisions about where to focus resources to maximize profitability.
Understanding the relationship between production and costs is crucial in this analysis, as every factor of production - such as labor, materials, and overhead - has its corresponding factor price. Managers must also comprehend how to evaluate short-run costs, since they provide insight into potential profit points. Furthermore, they should be able to calculate profits by comparing total revenue with total cost, recognizing profits and losses with regards to the average cost curve, and determining the appropriate price at which a firm should continue producing in the short run.