Research Has Shown That Most Economic Profits from Selling a Prescription

question 92

Multiple Choice

Research has shown that most economic profits from selling a prescription drug are eliminated 20 years after the drug is first offered for sale.The main reason for the elimination of profits is

• A)after 20 years most people who have taken the drug have passed away or are cured of the illness the drug was intended to treat.
• B)firms sell their patent rights to other firms so that they can concentrate on finding drugs to treat new illnesses.
• C)the quantity demanded of the drug has increased enough that the demand becomes inelastic and revenue falls.
• D)after 20 years patent protection is ended and other firms can produce less-expensive generic versions of the drug.

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Definitions:

Herfindahl Index

A measure of market concentration and competition among firms within an industry, calculated by summing the squares of individual firms' market shares.

Four-Firm Concentration Ratio

A measure of market structure that indicates the combined market share of the four largest firms in an industry, used to assess the level of competition.

Market Power

The ability of a firm or group of firms to manipulate prices or output in a market.

Excess Capacity

The situation where a firm or an economy is producing less than its potential output, often indicating inefficiencies or a lack of demand.