Changes

Remember that “economic profits” include far more than ordinary “accounting profits” or “profits” in the ordinary sense of the term.  “Economic profits” are total revenues minus costs that include opportunity costs, time value of money, and other hidden costs missing from most statements about profits.  Economic profits are much harder to come by.

Remember that “economic profits” include far more than ordinary “accounting profits” or “profits” in the ordinary sense of the term.  “Economic profits” are total revenues minus costs that include opportunity costs, time value of money, and other hidden costs missing from most statements about profits.  Economic profits are much harder to come by.

Who enjoys true economic profits?  Monopolies do, because they can increase their price and reap economic rents.  Microsoft garners hefty profits year after year, with no end in sight.  But ultimately all monopolies, even Microsoft, fall prey to competition and those economic profits dry up.

Who enjoys true economic profits?  Monopolies do, because they can increase their price and reap economic rents.  Apple garners hefty profits year after year for its patented designs on the iPhone, with no end in sight.  But ultimately all monopolies, even Apple and Microsoft, fall prey to competition and those economic profits dry up.

Inventors and other innovators can enjoy real economic profits.  Thomas Edison did, with his numerous marvelous patented inventions.  Patents give the holder an exclusive right to the product for 17 years.  Competition is prevented for that time, and enormous economic profits can be obtained without competition driving the price down.  AT&T used Alexander Graham Bell’s patent on the telephone to build a highly profitable company for a century.  But ultimately its economic profits dried up, too.

Inventors and other innovators can enjoy real economic profits.  Thomas Edison did, with his numerous marvelous patented inventions.  Patents give the holder an exclusive right to the product for 17 years.  Competition is prevented for that time, and enormous economic profits can be obtained without competition driving the price down.  AT&T used Alexander Graham Bell’s patent on the telephone to build a highly profitable company for a century.  But ultimately its economic profits dried up, too.