Difference Between Monopoly Pricing and Competitive Pricing Essay

Congress is discussing the possibility of removing plain protection for emotional state saving drugs in order to reduce the cost of the Medicare and Medicaid systems. Discuss both the short-run and large-run implications for the economic situation of the drug patience. Include in your answer the impact on impairments, new development, etc. of drugs. Include becharm graphs showing the difference between monopoly pricing and competitive pricing.The drug industry currently takes on both monopolistic and competitive market structures. When a drug company develops a new drug, at that place are spare laws that allow the company to have a monopoly on selling the drug. In the short-run, the company is able to prosecute the monopoly price (above marginal cost) and maximize net income by producing the quantity where marginal revenue equals marginal cost. Once the patent runs out, former(a) drug companies have an incentive to enter the market cause it to become more competitive. Th ese new companies produce generic versions of the drug and charge a price below the monopolists price. As more and more competitors enter the price is driven down to marginal cost.If sexual relation were to remove patent protection on life-savings drugs, drug companys profits for life saving drugs would decrease. More companies would be able to come out producing the drugs without waiting for the patent period to end therefore, the original drug churchman would not be able to charge the monopoly price for very long because competitors could quickly engineer generic versions. The original producer would no long-run be a price maker and instead need to exist 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.Since the original drug maker volition not be able to benefit from monopoly pricing during the patent period, there will be less incentive for them to c reate lifesaving drugs. A break out of the benefit of higher profits during the monopoly period is the ability to recoup just about 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 competition in the market which prevents a sensation drug maker from dictating the market price of these newly developed lifesaving drugs.