I'm trying to model/understand the following intuition:
- Company makes a product
- Product gets sold, company makes a profit
- Company does something with the profit to become "better" at what they do: hire better people, improve their technology, etc
- Company makes a better product
Most of the theories I've come across seem to assume companies operate at a constant efficiency. How do you model company improvements (both product and process innovations) that come from profits?
The broader question I'm trying to understand is - how to you measure/correlate/predict company improvements from profitability?