There is an innovative and more effective new drug on the market that manages high blood pressure. The drug manufacturer has applied for and received a patent.

1. Describe the different type of costs to produce the drug. Categorize the costs by fixed and variable, and then indicate/describe the profit maximizing condition.
2. What happens in the market for other high blood pressure drugs, that are not as effective? Consider which curve shifts and the corresponding change in equilibrium price and quantity.
3. Compare the equilibrium price and quantity for the drug under the patent conditions relative to if the market were opened to perfectly competitive forces. Explain the main characteristics of each market structure.
4. Why would you or would you not allow this new drug to be available through a patent?