Answer to Question #98397 in Microeconomics for keke

Answer to Question #98397 in Microeconomics for keke


Question #98397

Should the profits earned by (the central) Baskin Robbins Ice Cream Company be theoretically considered an economic profit or are they an implicit cost — a royalty due to Mr. Robbins for creating 31 flavors? Asked differently, how do economists explain how/why firms in monopolistic competition break even?

Expert’s answer

The profits earned are considered as economic profits due to the monetary costs and opportunity costs the company pays and also the revenue it receives.A firm that makes profits will still only break even in the long run because demand will decrease and average total cost decrease making zero economic profit.This shows the amount of influence over the market because of brand loyalty it can increase its prices but not lose all of its customers.

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