• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint
Share this Page URL
Help

Chapter 3. Managing Technological Evolut... > Evolution in Increasing Returns Busi...

Evolution in Increasing Returns Businesses

Academics used to believe that all business was based on a concept of decreasing returns. Decreasing returns means that the more of something that you produce, the lower the returns that you will achieve on that production. A good example of decreasing returns is mining. At first, when you mine a vein of coal or gold, you get a high return because you tap the least costly veins. Over time, however, as you produce more and more coal or gold, you use up the easy-to-access material and are forced to incur higher and higher costs to get the remaining deposits. As a result, costs increase, causing decreasing returns. While many industries—mining, heavy chemicals, agriculture, construction—display decreasing returns, researchers have recently discovered that many high-technology businesses display increasing returns.[18]

Increasing returns businesses are those in which the benefits of something increase as the volume of production increases. Software is a good example of a business based on increasing returns. The more software you produce, the higher your returns on sales will be because virtually all of the costs of producing software lie in the production of the first unit. Once initial costs of writing code have been paid for, it costs only pennies to stamp an additional compact disk with software. Researchers have found that many knowledge-based technology businesses—pharmaceuticals, computers, and telecommunication to name a few—display increasing returns.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint