Government policies can have a significant impact on the average profitability of firms. The government, however, is not included as a potential threat. Why should the model be expanded to include government? Why or why not?

Which firm will have a higher level of economic performance: (a) a firm with valuable, rare, and costly-to-imitate resources and capabilities operating in a very attractive industry or (b) a firm with valuable, rare, and costly-to-imitate resources and capabilities operating in a very unattractive industry? Assume both these firms are appropriately organized. Explain your answer.