When patent protection expires for a pharmaceutical company, it forces changes w

Question

When patent protection expires for a pharmaceutical company, it forces changes within the company to adjust its business strategies from a monopolist position to a position that is much more competitive. With that premise, answer the following questions: Do the variable costs and marginal costs vary much between these two market positions for a specific drug? Why or why not? What happens to the average total cost curve for the same (now generic) drug with regards to the original (prescription) manufacturer and the new generic manufacturers? If you were the person in charge of a drug manufacture moving from a patent-protected position to a position of competition with generic manufacturers, what would you do? For example, would you adjust manufacturing processes in-house and revamp processes to sell your own generic brand while continuing to sell the original prescription drug at a higher price? Or would you buy one of the generic drug companies and bring them into your responsibility and let them manufacture the drug for you? Or would you think about “tolling” a generic brand with a production company? (Tolling means you just contract out the production to an independent company

Explanation / Answer

a) No, Variable cost and marginal cost will not bring variation in variable cost or marginal cost because market characteristics affect revenue and not cost curves.

b) No, there will be no change in total cost conditions in two markets because once again, market conditions affect revenue and not cost conditions. Yes, in one way it might add to cost. In a competitive market, selling costs may increase leading to increase in total cost and marginal cost.

c) In my opinion, I will buy one fo the generic company and make it their responsibility ot manufacture the drug for me becuase in this production will be in my control without affecting patent protected drug. accurate resoults are pssible when fact are knon in numerical terms.

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