Problem

For many years, the Justice Department has tried …

01:55

Problem 26 Hard Difficulty

Why are generic pharmaceuticals significantly cheaper than name brand ones?

Answer

Branded drugs are mainly patented drugs which gives the manufacturing company monopolistic
power for the time patent is in force, so the prices of such drugs are high. While generic drugs
are those drugs which have public formula so any drug manufacturing company can produce
those medicines but because of competition prices of these medicines will be less.

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Principles of Microeconomics for AP® Courses

Chapter 9

Monopoly

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Rui W.

October 13, 2021

Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10% less than the monopolist. Before you

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Problem 26

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Video Transcript

everyone. Today we're solving problem number 26 from Chapter nine of the text, which asks us why generic pharmaceuticals are significant in the less price you or significantly cheaper bad name Brad Flux. So we have generic pharmaceuticals versus neighbor, and the biggest difference is that generic drugs or generic pharmaceuticals are not protected by patent law. Remember what we're thinking about this party. A problem is barriers to entry. That's something we've previously discussed in Chapter nine and pop in Laws are a part of a period are a type of marriage country, the generic pharmaceutical. Those do not have any various entry, no patent law. Again, I'm gonna make like a flow diagram to show my logical step name. Brand ones do hot pot, so they do have barriers to entry. So without pot laws, that means that there's less competition. So that sorry, that means there's reader competition. So um, no, very sentry. That's the biggest thing. And as a result of know various entry, more and more people can anti into certain market on dhe when more and more companies are competing in one market of pharmaceutical drugs, well, then prices have to go down and there's big competition. You know, there's two entry when, as you mentioned before, without barriers to entry were without even then logically art, if no barriers, more more of you. But I'm sure so competition will go up. And in the market, when you have an increase in competition, the prices are going to fall. Thus, we have successfully explained in the slow chart how generic pharmaceuticals. I mean not how, but why are there generic pharmaceuticals are much t pay the name brand. Once again, the main thing has to do with recognizing no pot laws are placed underneath pharmaceuticals and then recognizing that pot in laws are type of marriage. And so, without barriers, entry competition, ordinary pharmacies schools will go up, and as a result, with greater competition in the market, prices will decline. So there it happen. If you guys enjoy this explanation, use of fight but an exit. I hope you all have a nice day. And thank you for watching

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