Page "Industrial organization" Paragraph 44

The performance of an industry or firm is measured by profitability.

Profit is the difference between revenue and cost, and revenue is determined by price.

Thus performance can be influenced through changing costs or prices.

Profitability can also be affected by a firm ’ s agility ( i. e. ability to adjust to things like changes in market demand ).

Research and development, and availability of capitol and resources are factors that greatly influence whether or not a firm is agile.

The ability to measure performance between industries is important in understanding the SCP relationships.

For example, if an industry is dominated by one firm or cartel does not see higher costs than a competitive industry yet has monopoly prices, then that non-competitive industry will see higher profits, whereas if costs increase, then profitability levels will be relatively similar.

This comparison is the driving force behind anti-trust legislation.