ECON 1201 Lecture Notes - Lecture 28: Monopolistic Competition, Natural Monopoly, Pharmaceutical Industry
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Earn lots of money and continue to earn over time. Government blocks entry of more than one firm. Patents : exclusive right for 20 years to be the sole provider. Spend 15103$ developing drugs b/c their return is huge. Average cost to develop and market is million, but their revenue will far exceed (they will have a monopoly on that drug. Once patent expires, barrier to entry is removed -> price drops. Economies of scale are so large that one firm has a natural monopoly. Huge fixed costs, once you make the large investment. Public utilities in local markets (hydroelectric dam), the variable input cost is very small (person turning on the dam) Marginal cost to produce is very small. Governments give power companies a monopoly over the power market if they get to set prices. Or if the government picked marginal cost, then the power firm would go out of business (no profit)
