a. In most of the developed countries, when a pharmaceutical firm develops a new drug, the patent laws give the firm a monopoly on the sale of the drug for a period of time (e.g. 10 to 15 years). Though a monopoly is generally inefficient, why does the government grant the firm a patent on its new drug?
b. When the patent runs out after about 20 years, what will happen to the price of the drug? Briefly explain your answer.
c. Most pharmaceutical firms are facing decreasing average costs and are always accused of creating deadweight loss because they charge prices higher than marginal cost. Is it feasible for governments to regulate these firms by asking them to charge prices equal to marginal cost (i.e. marginal-cost pricing)?