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Pharmaceutical companies can expect to earn large profits from blockbuster drugs (for high blood pressure, depression, ulcers, allergies, sexual dysfunction) while under patent protection. What is the source of these profits? Upon patent expiration, numerous rival drug companies offer generic versions of the drug to consumers. (The original developer continues to market the drug under its trade name and usually offers a second generic version of the drug as well.) Discuss the effect of patient expiration on the market structure, pricing, and profitability for the drug.

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Pharmaceutical companies can expect to earn large profits from blockbuster drugs (for high blood pressure, depression, ulcers, allergies, sexual dysfunction) while under patent protection. What is the source of these profits?
The source of this profit is the monopoly that the company enjoys. Based on the monopoly power the firm operates on the profit maximizing point. The firm operates at a point where the marginal cost equals price. The patent protection is a barrier to entry and this disallows other firms from entering into the market.
Upon patent expiration, numerous rival drug companies offer ...

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