The most useful approach to forecasting industry profitability in the future is:
A)To estimate the industry's revenues and costs in future years
B)To use an industry's probability at similar stages of the business cycle in the past as an indicator of future profitability
C)To extrapolate the trend of industry profitability into the future
D)To understand how the industry's structure has determined competitive intensity and profitability in the past,then to use information on an industry's changing structure to predict how profitability is likely to change in the future

Question

Quizplus · Accepted Answer

Understanding how an industry's structure has affected competitive intensity and profitability in the past can provide insights into how these factors will change in the future. By analyzing changes in the industry's structure, such as new entrants or shifting buyer power, it is possible to predict how these changes will impact profitability. This approach is more reliable than extrapolating past trends or using past business cycles as indicators of future profitability. Estimating future revenues and costs can also be useful, but without an understanding of how changes in the industry's structure will impact competitive intensity and profitability, these estimates may not be accurate.

The Most Useful Approach to Forecasting Industry Profitability in the Future