Research has shown that most economic profits from selling a prescription drug are eliminated 20 years after the drug is first offered for sale. The main reason for the elimination of profits is
A) firms sell their patent rights to other firms so that they can concentrate on finding drugs to treat new illnesses.
B) after 20 years patent protection is ended and other firms can produce less-expensive generic versions of the drug.
C) the quantity demanded of the drug has increased enough that the demand becomes inelastic and revenue falls.
D) after 20 years most people who have taken the drug have passed away or are cured of the illness the drug was intended to treat.
Question 2
The Wong family consumes 3 pounds of fish and 5 pounds of chicken per month. The price of fish is 8 per pound and chicken is 4 per pound.
a. What is the amount of income allocated to fish and chicken consumption?
b. What is the price ratio (the price of fish relative to the price of chicken)?
c. Explain the meaning of the price ratio you computed.
d. If the Wongs maximize utility, what must the ratio of the marginal utility of fish to the marginal utility of chicken be equal to?
e. If the price of chicken rises, will the Wong family consume more chicken, less chicken, or the same amount of chicken? Explain your answer using the rule of equal marginal utility per dollar.
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