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1. When patent protection expires for a pharmaceutical company, it forces changes within the company to adjust its business strategies from a monopolist position to a position that is much more competitive. With that premise, answer the following questions:

Do the variable costs and marginal costs vary much between these two market positions for a specific drug? Why or why not?

What happens to the average total cost curve for the same (now generic) drug with regards to the original (prescription) manufacturer and the new generic manufacturers?

If you were the person in charge of a drug manufacture moving from a patent-protected position to a position of competition with generic manufacturers, what would you do? For example, would you adjust manufacturing processes in-house and revamp processes to sell your own generic brand while continuing to sell the original prescription drug at a higher price? Or would you buy one of the generic drug companies and bring them into your responsibility and let them manufacture the drug for you? Or would you think about “tolling” a generic brand with a production company? (Tolling means you just contract out the production to an independent company.)

2. Every month, each of us usually receives a power bill. More often than not, there is usually a piece of paper in it asking if you would like to contribute extra money to your power bill to help those less fortunate. At the same time, for very low socioeconomic levels, there are government provisions (based on federal law) for consumers to receive federal/state funds for heating and energy assistance. This is known as the LIHEAP (Low Income Heating and Energy Assistance Program).

Given this background, answer the following questions:

Explain LIHEAP from your computer/literature research. Did you even know it existed? What are your views, since all taxpayers are paying to support this program?

Since most electricity/utility companies are regulated monopolies that make profits for their stockholders, do you think, from a social welfare perspective, that society maximizes benefits from utilities withholding more electricity production in order to maintain higher prices? Why or why not?

Would it be better for utilities to manufacture more quantities of power, thereby lowering prices, so that more people could afford electricity? Why or why not?
If lower electricity prices were possible, do you think the request for contributions in your power bill would disappear? Why or why not?
Would the LIHEAP program disappear? Why or why not?

In your view, do you think local government regulators are getting all the information they need from power companies in order to determine correct power rates? Why or why not?