Managerial Economics Problem Set 3

Managerial Economics Problem Set 3

Problem Set #3

1. Market approval in the US for new pharmaceutical products is a long, arduous, and expensive process. Once approved, patent protection keeps close substitute products from entering for some years. If the demand for a particular product is stable, what would you predict for the profitability after approval and prior to patent expiration?

2. When a brand name drug’s patent protection expires, many generic producers are usually ready to enter the market. These firms’ products are close substitutes, they have similar production technologies, the regulatory hurdles to enter are not so great, and, within a few months, there are plenty of rivals. What would you predict for the profitability during these first few months after generic drug entry?

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