One reason patent protection is vitally important to pharmaceutical firms is
A) successful new drugs are not profitable. If firms are not granted patents many would go out of business and health care would be severely diminished.
B) the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process.
C) the high salaries pharmaceutical firms pay to scientists and doctors make their labor costs higher than for any other business. Profits from patents are needed to pay these labor costs.
D) that taxes on profits from drugs are very high; profits from patent protection enable firms to pay these taxes.
Question 2
Eliza consumes 12 cappuccinos and 8 apple turnovers per week. The price of a cappuccino is 4 each and apple turnovers are 1 each.
a. What is the amount of income allocated to cappuccino and apple turnover consumption?
b. What is the price ratio (the price of cappuccinos relative to the price of apple turnovers)?
c. Explain the meaning of the price ratio you computed.
d. If Eliza maximize utility, what is the ratio of the marginal utility of cappuccinos to the marginal utility of apple turnovers?
e. If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer apple turnovers, or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.
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