Problems up Pure Competition



True or Flase?
Discussed in lecture Oct 7 2010. See pages 135 - 137 (of Jones Macro Econ Crisis Update Ed)



False

The gist of the logic (but by no means the full answer: read the book please) is that drug companies have production costs that involve high initial fixed costs and practically zero marginal costs.

Thus if pharmaceutical-type companies were subject to competitive pricing,
where
 
  then
    i.e. those firms could not operate profitably.


Overachievers should draw a graph with P=MR, AC and MC curves as well.


Apply to Other Companies? - This might apply to many types of firms; media firms (which require initial costs to produce movies, TV shows, music and video games, but for which the marginal cost to distribute such media is practically zero), software (high fixed costs, low marginal costs), textbooks
& other books. (high initial investment, low costs to reprint)





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