Firms may earn more than a normal profit, more than is necessary to pay its cost of capital. The firm is then earning “economic profit,” or simply “excess profits.”
If a firm earns excess profits, is it greedy and should those excess profits be taken away?
Don't use plagiarized sources. Get Your Custom Essay on
Excess Profits (Economic Profit)
Just from $13/Page
Healthcare providers are able to earn excess profits for one of three rea- sons; the first is beneficial for consumers and should be encouraged, whereas the other two are disadvantageous to patients and taxpayers.
Excess Profits Based on Differentiation and Innovation When the iPhone was invented, it was unique; nothing like it existed. A new product was made available to consumers that they were willing to buy because they valued it highly. Apple earned excess profits. Similarly, purchasers are will- ing to pay higher prices for innovative blockbuster drugs that treat previously untreatable diseases because the benefit they receive is worth the higher cost.