U.S. antitrust laws are designed to prohibit monopolization and encourage competition. Why, then, does the government erect barriers to entry and create monopoly power by granting firms patents?
What will be an ideal response?
Patents are designed to encourage creative activity and promote the development of new technologies. Firms can spend years on research and development in the search for new and better production processes and consumer products. Research and development is costly - many potential new ideas are ultimately not technically feasible or never become commercially successful. If research and development results in a successful product, competing firms can easily copy the product and sell it without incurring the research costs of the firm that developed the product, if patent protection is not granted. Most people would object to this form of "free riding" on equity grounds; but patents also encourage firms to conduct research that leads to social benefits: new technologies result in a higher standard of living for all and a more efficient allocation of society's scarce resources.
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Suppose that the government of New York state promises to decrease taxes to a firm if it decides to stay in New York instead of moving to another state. This policy on the part of the state constitutes ________, to make the ________ of the firm remaining in New York.
A) an incentive; marginal benefit exceed the marginal cost B) an incentive; marginal cost exceed the marginal benefit C) a command; marginal benefit exceed the marginal cost D) a command; marginal cost exceed the marginal benefit
Based on Figure 4.1, food is:
A) a normal good. B) an inferior good, but not a Giffen good. C) a Giffen good. D) none of the above
Automatic stabilizers tend to stabilize the level of economic activity because they
A. Are changed quickly by Congress. B. Increase the size of the multiplier. C. Control the rate of change in prices. D. Increase spending during recessions and reduce spending during inflationary periods.
Compared to barter, money __________ transaction costs, making transactions __________ time-consuming
A) increases; more B) increases; less C) reduces; more D) reduces; less