But 'reasonable profit' isn't a constant. Just look at the airline industry - no single airline has had a consistent profit margin (most have not even been consistently profitable!). Thin margins aren't incentive to leave an industry - if they were then grocery stores would not exist (as they all have razor thin margins) and WalMart, Target, Kmart would all have switched industries.

In your example, if taxes of $0.50 are added, the firm may still sell widgets at the post-tax price of $5 and accept the reduction in margin from $1 to $0.50.