Final answer:
Stable profits for admired companies signify consistent positive net income over time, achieved through innovation and efficient production that grants a competitive advantage. This financial stability allows for reinvestment and sustains operations during lower-earning periods.
Step-by-step explanation:
Admired companies generate stable profits, which is defined as the scenario where a company consistently earns a positive net income over time. This stability in profitability often comes from profits and earnings distributed among employees and reinvested in business operations to promote growth and improve productivity.
Stable profits are critical for a company's longevity; they enable the company to invest in innovations and manage periods of lower earnings without the reliance on external financial capital. According to the formula average profit = price - average cost, known as the profit margin, stable profits imply that the market price of a company's product stays above the average cost, leading to consistently positive net earnings.
A firm's ability to maintain such stability often stems from its innovation and efficiency in production, which can provide the firm with a competitive edge and result in above-normal profits before competitors replicate their success.