Difference between monopoly pricing and competitive rricing Essay

Essay 1 relation is discussing the possibility of removing patent guard for life deliverance drugs in nightspot to reduce the cost of the Medicare and Medicaid systems. Discuss two the short-run and long-run implications for the frugal situation of the drug industry. Include in your answer the impact on footings, tender development, etc. of drugs. Include appropriate graphs showing the difference amid monopoly pricing and competitive pricing. The drug industry currently takes on both monopolistic and competitive commercialise structures.When a drug company develops a new drug, there are patent laws that allow the company to commence a monopoly on selling the drug. In the short-run, the company is able-bodied to rase the monopoly charge (above fringy cost) and maximize profit by producing the quantity where borderline revenue equals peripheral cost. Once the patent runs out, other drug companies suck an incentive to enter the market causing it to become more competi tive. These new companies produce generic wine versions of the drug and charge a price to a lower place the monopolists price. As more and more competitors enter the price is driven down to marginal cost.If congress were to remove patent protection on life-savings drugs, drug companys net for life saving drugs would decrease. More companies would be able to begin producing the drugs without waiting for the patent time period to end therefore, the original drug maker would not be able to charge the monopoly price for very long because competitors could quickly engineer generic versions. The original producer would no longer be a price maker and instead need to follow profit maximization rules of a competitive market by producing the quantity where marginal revenue equals marginal cost and charge a price equal to marginal marginal revenue.Since the original drug maker will not be able to benefit from monopoly pricing during the patent period, there will be slight incentive for th em to create lifesaving drugs. A part of the benefit of higher profits during the monopoly period is the ability to recoup some of the research, develop, and testing costs of producing these drugs that the generic makers do not incur. Consumers on the other hand would benefit from contest in the market which prevents a single drug maker from dictating the market price of these newly developed lifesaving drugs.