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# Explain why prices of pharmaceutical drugs supplied by a monopoly are likely to be higher than in markets which are more competitive
- URL: https://www.a-level-economics-tutor.com/explain-why-prices-of-pharmaceutical-drugs-supplied-by-a-monopoly-are-likely-to-be-higher-than-in-markets-which-are-more-competitive/
- Published: 2026-10-05T16:10:31.000Z
- Updated: 2026-10-05T16:16:40.000Z
- Author: Jaisul Naik
- Tags: AQA 9 mark question

### [AQA A-Level Economics Paper 1 June 2021](https://www.a-level-economics-tutor.com/content/files/2026/03/AQA-A-Level-Economics-Paper-1-Insert-June-2021.pdf?ref=a-level-economics-tutor.com)

**Extract B (lines 9–10) states: ‘After the monopoly’s patent expires, other companies can manufacture and market the same drug under its generic name, usually at a lower price.’** 

**With the help of a diagram, explain why prices of pharmaceutical drugs supplied by a monopoly are likely to be higher than in markets which are more competitive. (9 marks)**

A monopoly exists when one firm dominates the market. A monopoly market consists of high barriers to entry, imperfect information, and a high degree of product differentiation. These characteristics allow the monopoly to act as a price- maker. For example, extract b line 8 mentions one drug costing $750 per pill. Firms aim to maximise profits, so they produce at the point where marginal costs = marginal revenue (MC=MR). This means that firms can charge higher prices (p1) and make supernormal profit, as shown by the shaded rectangle op1c1q1\. 

![](https://storage.ghost.io/c/c4/66/c466eade-2ad5-4613-8010-7a8ffa8c352f/content/images/2026/09/image-18.png)

Monopolistic competition consists of low barriers to entry, and there is slight product differentiation between firms. This means that most firms face a relatively elastic average revenue (AR) curve; if firms raise prices, quantity demanded is likely to fall by a larger proportion due to the number of close substitutes available to customers in the market. In the short-run, firms act like a monopoly. In the long-run, prices will fall due to competition. Since there are low barriers to entry, profit-maximising firms will enter the market. Extract b line 10 mentions that new firms can manufacture the same drug as another firm if their patent is expired. They are incentivised to do so because they know that existing firms are making supernormal profits. As a result of new firms entering the market, market supply increases. Therefore, each firms’ average revenue falls as they have to accept a lower market price. This eventually leads to a new long-run profit maximising equilibrium where existing firms are only able to make normal profit.

![](https://storage.ghost.io/c/c4/66/c466eade-2ad5-4613-8010-7a8ffa8c352f/content/images/2026/09/image-19.png)

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