Answer to Question #80467 in Economics for Allie

Question

Killtrol® is a patent drug of Clark Pharmaceuticals. As of April 1, 2018, it will go off patent and become a generic drug (everyone can manufacture it). Answer the following questions.
a) What market structure best describes the market structure for Killtrol® while on patent?

b) What market structure best describes the market structure for Killtrol® when it goes off patent?

c) What will happen to the following when Killtrol® goes off patent?

1) The price? Why?

2) Profits at Clark Pharmaceuticals? Why?

3) The output (quantity)?

Answer 1

a) It is a monopoly while on patent, because there is the only producer.
b) The market structure changes to perfect competition for Killtrol® when it goes off patent, as there will be many producers of the same generic product.
c) What will happen to the following when Killtrol® goes off patent?
1) The price will decrease, as monopolist sells less at the higher price.
2) Profits at Clark Pharmaceuticals will decrease, because there will be more producers and lower price.
3) The output (quantity) will increase as monopolist produces less at the higher price.