When generic drugs enter the market after the patent for a brand ...

[sheilaspns]

When generic drugs enter the market after the patent for a brand name drug expires, the price of the brand name drug often increases. This is usually due to
 
  A) the demand curve for the brand name drug shifting in but becoming more inelastic.
  B) the demand curve for the brand name drug not shifting, but the marginal cost of producing the good increases.
  C) the demand curve for the brand name drug shifting in but becoming more elastic.
  D) the demand curve for the brand name drug not shifting, but loyal customers are willing to pay a higher price for the brand name drug.

Question 2

Suppose all firms in a competitive market are currently in both short-run and long-run equilibrium. What impact will a lump sum tax have on each firm in the short run? in the long run?
 
  What will be an ideal response?

[Meganchabluk]

Answer to Question 1

A

Answer to Question 2

In the short run, the lump sum tax represents a fixed cost. The firm's output decision is unchanged, but its profits decrease. In the long run, the tax raises the LRAC of each firm, but not MC. Minimum AC is higher, so price is higher. With a higher price, each firm produces a greater quantity, but the higher price means less quantity is demanded in total; thus, the number of firms will decrease.