Explain the social costs and benefits of providing patent protection to monopolists.

Expert Solution

Patent protection to a monolpolist firm means that that firm has exclusive rights to produce and sell a good in the market.

The social costs of patent protection to monopolists can be listed as below:

1. High prices implying lower consumer surplus.

2. Lower investment on R&D in that particular field in which patent has been provided implying non-availability of better product.

3. Lower product diversification leading to no choice for the consumers.

Social Benefits of patent protection to monopolist:

1. Expectation of high profits due to patent grants leads to higher investment in R&D by the other firms.

2. Patent protection also encourages the firm to produce at minimum efficient scale, that is, at lower costs so that their profits can be maximised.

3. Price discrimination by the monopolist due to patent protection - leads to lower prices for those with lower demand and higher prices for higher demand which is fairplay.

Rahul Sunny answered 1 year ago

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