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Price: Loss of a Patent

With a patent on a drug, it has had very little competition and this drug has been a major source of company revenue and profit. However, the patent will soon expire and other drug-manufacturing firms seem to be preparing to enter the market in competition with Happy Pets. Describe the changes in pricing that are likely as competitors enter this market. Describe the current market structure and the type of market structure you think will emerge after the patent expires. What should Happy Pets do in response to these market changes to maximize its profits from this product? What other recommendations would you offer this firm?

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Step 1
Before the patents expire, the firm enjoyed monopoly power. It was the price setting firm. It set the price at a level where the marginal costs of Happy Pets equaled marginal revenue. The demand curve for Happy Pets was the industry demand curve and was downward sloping. The point where the marginal costs equals marginal revenue was the profit maximizing point for Happy Pets. This situation existed when the patent had not expired. The market structure was a monopoly. In a monopoly Happy Pets is the price maker, the ...

Solution Summary

This posting gives you a step-by-step explanation of the impact of losing a patent. The response also contains the sources used.