Contrast short-run and long-run effects of taxing away

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A British pharmaceutical company spent several years and considerable funds on the development of a treatment for HIV patients. Now, with the protection afforded by patent rights, the company has the potential to reap enormous gains. The government, in response, has threatened to tax away any rents the company may earn. Is this an advisable policy? Why or why not? (HINT: Contrast the short-run and long-run effects of taxing away the economic rents.)

Reference no: EM13205454

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