Normal and Excess Profit
1. What is the difference between the accounting and economic definitions of profit?
2. What is the difference between normal and excess profit?
3. Under what circumstances does excess profit benefit consumers?
4. Under what circumstances does excess profit harm consumers?
5. What remedies are available when excess profits occur because of
anticompetitive actions, lack of patient information, or comprehensive insurance coverage (because patients have little incentive to be concerned with prices)?
6. What functions do profits serve in healthcare?
Firms cannot start, grow, and survive on only loans. Banks and the debt markets lend money based on the risk that the loan will be repaid with interest. A firm without any assets is an extremely poor risk. As the firm has greater amounts of invested capital and improved earnings prospects, loans become less risky. Once a firm has incurred too much debt (in relation to its capital), loans again become very risky.
