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Assume a pharmaceutical company has a ten year patent to produce a drug exclusively. Moreover, assume the marginal cost of producing this drug is fixed.
a) Draw a diagram to show price, quantity, and profit from the sale of this drug during the patent period.
b) Assume that after the patent period is over many firms will be producing this drug. Draw a graph to show the equilibrium output and price for this (now monopolistically competitive) firm in the post-patent period.
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