When firms have high up-front costs, they can recover development costs only if they can price their successful products at monopoly levels.

Question

Quizplus · Accepted Answer

When firms have high up-front costs, such as in industries like pharmaceuticals, they often need to charge high prices for successful products in order to recover their investment in research and development. This can result in monopolistic pricing if there are no close substitutes for the product.

When Firms Have High Up-Front Costs, They Can Recover Development