Question

Explain how the concept of “economic profit” might help explain the rationale for the government’s granting of monopolies to those firms that protect their product with a patent.

Answer 1

Economic profit also takes into account the opportunity cost, where the government gets to grant monopolies to protect their product with patent, it can be mentioned that the economic profit is very low when compared to that of accounting profit this indicates the opportunity cost of granting a patent is very high and this doesn't provide government a strong evidence to grant a patent and on the other hand the economic profit is very high and is almost equal to that of accounting profit and this means that the opportunity cost is very low and this gives an evidence that the government took a correct decision