Final answer:
A viable business model is essential for creating customer value and generating sufficient revenues to cover costs and earn a profit. It involves cost structure analysis, understanding market structure, and strategic decision-making regarding pricing and production quantity. Innovation is also a key factor for maintaining competitive advantage and achieving above-normal profits.
Step-by-step explanation:
A viable business model encompasses various elements essential for a company's success. It sets forth how a company's strategy and operations will create value for customers, allowing the company to bring in sufficient revenues to cover costs and realize a profit. A central aspect of a viable business model is its ability to generate ample revenues to exceed costs and thus secure a profit margin. To achieve this, firms break down their total costs into fixed and variable costs to understand their average total cost, average variable cost, and marginal cost. Profit maximization involves a careful analysis of sales and revenue in conjunction with market structure.
In the long-term perspective, innovation is key to staying competitive and earning profits. As Gregory Lee, CEO of Samsung observed, a company's relentless pursuit of innovation can provide a temporary edge over competitors, leading to the ability to earn above-normal profits. This focuses on the firm's ability to produce products more cheaply or introduce desirable features that resonate with consumers' wants.
For firms to secure profit in the long run, they must not only understand their cost structure and market structure but also make strategic decisions concerning production quantity and pricing. This cost and revenue analysis is crucial for a business's ability to sustain profitability and maintain a competitive advantage in their respective markets.