The Diverging C Curve

The Diverging C Curve is a diagram created by Darrick Wood economist Connor Brown to represent the concept that firms may operate at a level of subnormal profit, because of low revenue, in order to gain more revenue in the long run.
The Diverging C Curve starts with the short run and long run marginal revenue residing at the same point. At this point, they are making subnormal profit. However, whilst the short run revenue stays subnormal, the run curve diverges, and grows. Conventionally, the short run marginal revenue curve is a line decreasing, implying that the law of diminishing return is at work, as revenue made on the next product is less than made on the product before.
To make the diagram look simpler, the marginal cost curve is steadily increasing with an evenness that makes it look more like a line than a curve. This suggests that the firm is in a constant state of Diseconomies of scale. However, in a variation of the diagram, the marginal cost curve could be relabelled as the average cost. The line dynamic would suggest that there are no fixed costs, no economies or diseconomies of scale and no influence of the law of diminishing return. Both variations do not exist in the real world, like most economic theories.
Example
In 1989, as the Berlin Wall was collapsing, Douglas Ivester, head of Coca-Cola Europe, made a snap decision. He sent out sales forces and ordered them to distribute massive amounts of coke to the newly opened market of East Germany. Coca-Cola quickly set up business in East Germany, giving away free coolers to merchants who began to stock up. It was a money losing proposition in the short-run; the Eastern German currency was still worthless - scraps of paper to the rest of the world. However, it was a brilliant business decision, and in the long run, in 1995, per capita consumption of Coca-Cola in the former East Germany had risen to the level of West Germany, which was already a strong market.

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