Difference between monopoly pricing and competitive rricing Essay

testify 1 Congress is discussing the possibility of removing indubitable bulwark for life saving drugs in order to reduce the cost of the Medicare and Medicaid systems. talk of both the short-run and long-run implications for the economical situation of the drug industry. Include in your answer the impact on prices, fresh development, etc. of drugs. Include appropriate graphs masking the difference between monopoly pricing and warring pricing. The drug industry currently takes on both monopolistic and competitive securities industry structures.When a drug fraternity develops a new drug, there are unvarnished laws that allow the company to energize a monopoly on selling the drug. In the short-run, the company is able to charge the monopoly price (above peripheral cost) and maximize put on by producing the measuring rod where marginal receipts equals marginal cost. in one case the patent runs out, different drug companies have an incentive to gain the mart do it to become more competitive. These new companies take a crap 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 congress were to remove patent protection on life-savings drugs, drug companys profits for life saving drugs would decrease. much companies would be able to begin producing the drugs without waiting for the patent period to end therefore, the airplane pilot drug cleric would not be able to charge the monopoly price for truly long because competitors could quickly engineer generic versions. The original producer would no perennial be a price maker and instead need to follow 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 pass on not be able to earn from monopoly pricing during the patent period, there ordain be less incentive for them to make water lifesaving drugs. A part of the benefit of higher(prenominal) profits during the monopoly period is the ability to deduct some 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 single drug maker from dictating the market price of these new developed lifesaving drugs.