Answer to Question #203617 in Microeconomics for Vedika

Question

What happens when a new idea leads to abnromal profit in a monopoly market and how do other firms take advantage of the abnormal profit?

Answer 1

When a new idea leads to abnormal profits most firms tend to hide this fact to reduce chance of competition with other markets and intervention by the government in form of antitrust investigation

How other firms take advantage

Most firms use it as an incentives for entrepreneurs to enter new markets

This enables firms to survive economic downtown by building up reserves

The funds can be used to invest in research and development of other firms.