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Question

If governments put a price ceiling on patented drugs, what will happen to the production of the drugs?


  1. Production of the drug increases

  2. Production of the drug decreases

  3. Production of the drug may increase or decrease depending on demand

  4. The firm will shut down and stop production.


Solution

The correct option is A

Production of the drug increases


If the governments put a price ceiling on patented drugs, the lower price will become the new MR and the profit-maximizing quantity will increase correspondingly. Hence, the firm would produce more drugs.

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