Question: a. Where will profits be higher: when demand for a patented drug is highly inelastic or when demand for a patented drug is highly elastic? (Figure may be helpful.)
b. Which of those two drugs is more likely to be "important?" Why?
c. Now, consider the lure of profits: If a pharmaceutical company is trying to decide what kind of drugs to research, will it be lured toward inventing drugs with few good substitutes or drugs with many good substitutes?
d. Is your answer to part c similar to what an all wise, benevolent government agency would do, or is it roughly the opposite of what an all-wise, benevolent government agency would do?
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