Economic Principles Applied to Pharmaceutical Companies
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This 11 page paper applies a number of economic principles to pharmaceutical companies in the way in which they produce and then sell drugs. Pharmaceutical companies can produce drugs for only pennies a pill. These companies are protected by patent laws for new drugs they develop and with a patent protecting their product; they have an effective monopoly on the drug. If this drug is sold at marginal cost, no new drugs would ever be developed as the company must take into consideration the research, development and the drug approval costs which must be recovered. The company must find a balance in maximizing profits (as a monopoly) and having their marginal revenue cover their high initial costs (in order for consumers to afford their product). This paper discusses order these principles and includes 2 supply and demand graphs to illustrate the points raised in the paper. The bibliography cites 5 sources.
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