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?

Explanation / Answer

•Do the variable costs and marginal costs vary much between these two market positions for a specific drug? Why or why not

No, since the huge cost here is the cost in R&D to develop and patent the drug which is the fixed cost , After discovery, the Marginal and average costs are less , so when industry changes from monopoly to competitive , the marginal cost and average cost will still be the same.

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?

The average total cost curve of new generic manufacturers will be below the original (prescription) manufacturer because the new manufactures don't have to bear the huge fixed cost of R&D and patents , thus their fixed cost will be far below the fixed cost of original (prescription) manufacturer and thus there Average total cost of new manufactures will be below the average total cost of original (prescription) manufacturer.

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