If the government sets the price of all pharmaceutical drugs equal to marginal cost, which of the following statements is TRUE?
I. Drug company profits will increase.
II. Consumers will pay lower prices for drugs today.
III. In the future, there will be fewer new drugs.

Question

Quizplus · Accepted Answer

If the government sets the price of all pharmaceutical drugs equal to marginal cost, it will result in drug companies making very little profits or potentially loss because they have to cover their research and development (R&D) costs. As a result, in the long run, drug companies will have less incentive to invest in new R&D, which will lead to fewer new drug discoveries. However, in the short run, consumers will benefit from lower prices for drugs. Therefore, only option II and III are correct, and option B is the best choice. Option A is incorrect because drug company profits will decrease, not increase, under this scenario. Option C is incorrect because it includes option I, which is not true.

If the Government Sets the Price of All Pharmaceutical Drugs