15. Suppose that it would cost a firm $10 million to develop a new drug. In the absence
of a patent, other firms will be able to copy and bring to market a generic equivalent of
the drug in three years. In each of these three years, the firm would earn monopoly
profits of $2.5 million. The firm cannot earn profits when generic drugs come to the
market. A patent will generate monopoly status for the firm for twenty years. If the
government knew this information ahead of time, which of the following is most correct?
A. The government should not grant a patent to the firm, because the firm would
produce the drug even without a patent.
B. The government should not grant a patent to the firm, because the firm would
charge a lower price if the firm gets the patent.
C. The government should grant a patent to the firm, because even with a patent
the firm will not earn monopoly profits.
D. The government should grant a patent to the firm, because the firm would not
produce the drug at all without a patent.