'Difference Between Monopoly Pricing and Competitive Pricing Essay\r'

'Congress is discussing the possibility of removing apparent(a) protection for vitality saving medicates in order to reduce the apostrophize of the Medicare and Medicaid systems. Discuss both the short-run and long-run implications for the scotch situation of the do drugs industry. accept in your state the impact on prices, new development, etc. of drugs. Include appropriate graphs showing the difference between monopoly set and competitive pricing.\r\nThe drug industry currently takes on both monopolistic and competitive market structures. When a drug political party develops a new drug, in that respect are patent laws that allow the company to own a monopoly on selling the drug. In the short-run, the company is commensurate to tear down the monopoly price (above peripheral cost) and increase profit by producing the meter where marginal revenue enhancement equals marginal cost. Once the patent runs out, other drug companies have an inducing to enter the market caus ing it to become to a greater extent competitive. These new companies produce generic wine versions of the drug and charge a price below the monopolist’s price. As more and more competitors enter the price is driven down to marginal cost.\r\nIf congress were to remove patent protection on intent-savings drugs, drug company’s profits for life saving drugs would decrease. More companies would be able to mystify producing the drugs without waiting for the patent period to end therefore, the passe-partout drug nobleman would not be able to charge the monopoly price for very long because competitors could chop-chop 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.\r\nSince the original drug maker will not be able to benefit from monopol y pricing during the patent period, there will be less incentive for them to create lifesaving drugs. A part of the benefit of high profits during the monopoly period is the ability to recoup some(a) 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 positive lifesaving drugs.\r\n'