Question

Semi-Salt Industries began its operation in $1975$and remains the only firm in the world that produces and sells commercial-grade polyglutamate. While virtually anyone with a degree in college chemistry could replicate the firm’s formula, due to the relatively high cost, Semi-Salt has decided not to apply for a patent. Despite the absence of patent protection, Semi-Salt has average daccounting profits of $5.5$percent on investment since it began producing polyglutamate—a rate comparable to the average rate of interest that large banks paid on deposits over this period. Do you think Semi-Salt is earning monopoly profits? Why?

Short answer

The $5.5\%$return on Semi-Salt's investment is not attractive, nor is it considered a monopolist's profit. If the company decides to exit the market and places it in the bank, it will obtain the same return.

Step-by-step solution

Given

The 5.5% return on Semi-Salt's investment is not attractive, nor is it considered a monopolist's profit. If the company decides to exit the market and places it in the bank, it will obtain the same return.

Finding if Semi-Salt is earning monopoly profits

Despite being in the market, Semi-Salt Industries does not have a patent for its product. So, it cannot be considered a monopoly.

Any company that hires an employee with a college degree in chemistry can replicate the firm's formula and enter the polyglutamate business. However, Semi-Salt's earnings are not attractive as they obtain a 5.5% return on the investment, which any investor can obtain if they place the same capital in a deposit account of an average bank.

The last fact will prevent new competitors from entering the market as investors will prefer to place their capital in the bank than invest it in an industry that will generate the same returns. There will also be the risk of it being lower given the competition generated when new rival firms enter.

Thus, the 5.5% return on Semi-Salt's investment is a non-monopoly profit.