The Pitfalls Of Creative Destruction

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Pitfalls of Creative Destruction Strong standing businesses have a definite answer to the five fundamental questions introduced in chapter two: what will be produced, how it will be made, who will get the goods, how to accommodate to change, and how to promote progress. However, outdated businesses start to collapse, suffer losses, and even close down when rival firms introduce cutting-edge innovations. This is the result of creative destruction: new products and production methods replace or rather destroy obsolete goods (McConnell et al 37). Creative destruction benefits the consumers because the new products make their lives easier and economic evidence shows that old firms should learn the newest technologies. On a microeconomic basis,…show more content…
From then on, Netflix seemed to be increasing while Blockbuster continued to decrease because Netflix was stealing Blockbuster’s consumer market. Figure 2 displays Netflix’s and Blockbuster’s revenue, where initially Blockbuster’s revenue was way greater than Netflix’s revenue. While Netflix made a steady rate of income, Blockbuster had steady losses and eventually a great drop in income, which lead to bankruptcy. Economically speaking, Blockbuster had to shut down because its marginal revenue was lower than its average total costs. Every time the business sold their product, it made losses because the revenue never covered its cost of operating and production costs. Among the five fundamental questions discussed in chapter two, how a product will be produced is vital. Firms want to minimize the cost of making an output. Thus, Blockbuster used efficient ways to produce its movies and games by outsourcing and reduced staffing (WordPress). However, a major expense for Blockbuster was rent for the location of its stores and wages for its employees, which Netflix did not have to worry about because it was an online service. Therefore,
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