Illustrate how the quantity produced and price change

Reference no: EM133276605

Question - In the pharmaceutical industry, when a firm discovers a new drug, patent law gives the firm a monopoly to produce the drug until the patent runs out (20 years in many developed countries such as Canada). When the patent expires, other firms enter the market to produce and sell a generic drug which is chemically identical to the former monopolist's brand-name drug. For instance, acetaminophen is the generic name for the name brand pain reliever drug Tylenol.

1. With a graph, illustrate the profit maximizing quantity and price for Tylenol prior to the expiration of the patent.

2. With a new graph, illustrate how the quantity produced and price change after the patent expires and generic drugs are produced.

3. Even after patents expire and generic drugs are produced, the price of the name brand drug often remains higher. Why do you think this occurs?

Reference no: EM133276605

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