Suppose that it would cost a firm $9 million to develop a new drug. In the absence of a patent, other firms will be able to copy and bring to market a generic equivalent of the drug in three years. In each of these three years, the firm would earn monopoly profits of $4 million. A patent will generate monopoly status for the firm for twenty years. If the government knew this information ahead of time, which of the following is most correct?
A. The government should grant a patent to the firm, because the firm would not produce the drug at all without a patent.
B. The government should grant a patent to the firm, because it does not have the resources to determine on a case-by-case basis exactly which inventions merit award of the patent.
C. The government should grant a patent to the firm, because even with a patent the firm will not earn a monopoly profits.
D. The government should not grant a patent to the firm, because the firm would earn sufficient profits to develop the drug without the patent.
Answer: D
You might also like to view...
Your friend owns a snow cone stand that he works by himself. He produces about 25 snow cones per hour. He wants to be able to produce twice as many snow cones per hour so he buys a second machine
He notices that he can only produce 10 more snow cones an hour. He jokes that he could have doubled his output with the second machine if he only had four hands. Using your knowledge of the production process, explain to your friend what you think has happened when he added more capital to his production process.
Other things held constant, when the general price level changes:
a. we move along the aggregate demand curve. b. we shift the aggregate demand curve to the right. c. we shift the aggregate demand curve to the left. d. we shift the aggregate supply curve to the right. e. we shift the aggregate demand curve to the left.