Question

can you explain in details how did we come up with this answer and how to answer similar

what is the economic concept behind this

NO.152 A pharmaceutical company was recently awarded a 20 year patent for a new medicine it has
developed. Which of the following results could be a consequence of this patent? (Select all that
apply.)
A. The high price of the medicine will result in insufficient demand.
B. The pharmaceutical company will charge higher prices for the drug.
C. The cost to produce the medicine will remain high after the patent expires.
D. Pharmaceutical companies will be incentivized to develop new medicines in the future.
E. The company will drive its competitors out of the pharmaceutical industry, limiting innovation.
Answer: B,D

Answer 1

Answer to the following question:

Option: B and D.

Explanation: After the government award patent to the firm, it will get a natural monopoly power. After earning this power, it will produce at such a point where its marginal cost cost of production becomes equal to its marginal revenue. At this level it will charge a price which is higher than the marginal cost of production. Now, seein this profit of the firm other firms will be incentivise to produce and innovate new medicines so as to be awarded by such patent which will give them the natutral monopoly power and profit.

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