Identify imperfectly competitive markets by their barriers to entry, market power, pricing behavior, and potential for inefficient output.
Arzeye Pharma has a patent, a legal barrier to entry, on its newly developed eye treatment that cures common eye problems. Arzeye Pharma is currently earning positive economic profit and is producing the profit-maximizing quantity of eye treatments.
Suppose instead that Arzeye Pharma's patent expires. Will the demand for Arzeye Pharma's treatment become more elastic, become less elastic, or not change? Explain.
Begin your response to this question at the top of a new page in the separate Free Response booklet and fill in the appropriate circle at the top of each page to indicate the question number.
State that Arzeye Pharma's demand will become more elastic and explain that as the patent expires more firms will enter the market which increases the number and availability of substitutes, causing consumers to be more responsive to changes in the price of eye treatments.
Total for question 110 points