Microeconomics: Theory and Applications with Calculus, 4e

11 Monopoly and Monopsony

Monopoly: one parrot.

CHALLENGE Brand-Name and Generic Drugs

A firm that creates a new drug may receive a patent that gives it the right to be the sole producer of the drug for up to 20 years. As a result, the firm can charge a price much greater than its marginal cost of production. For example, one of the world’s best-selling drugs, the heart medication Plavix, sold for about $7 per pill though it costs about 3¢ per pill to produce. A new drug to treat hepatitis C, Harvoni, sells for $1,350 a pill or $113,400 for a 12-week course of treatment.

Every year, many pharmaceuticals lose their patent protection. In 2015, drugs ...