Question 30

The market structure of the new drug shortly after its discovery is a monopoly.

The pharmaceutical company holds a patent for its newly developed drug, granting it exclusive rights to manufacture the drug for the next 20 years. This exclusivity establishes a monopoly in the marketplace, as no other company can legally produce or sell the same medication during this period.

A) Perfect competition

Perfect competition describes a market structure where numerous firms sell identical products, and no single firm can influence the market price. In this case, the existence of a patent prevents other companies from entering the market, thereby eliminating the characteristics of perfect competition.

B) Monopoly

A monopoly exists when a single firm controls the entire supply of a product or service in the market, which is precisely the case here. The pharmaceutical company has exclusive rights to manufacture the drug due to its patent, thus creating a monopoly as it is the sole provider of this treatment.

C) Monopolistic competition

Monopolistic competition features many firms selling similar but not identical products, allowing for some degree of market power. Since the company has a patent and is the only manufacturer, this situation does not fit the definition of monopolistic competition, where multiple sellers would exist.

D) Oligopoly

An oligopoly occurs when a few firms dominate a market, leading to limited competition and interdependent pricing. In this scenario, since the patent grants exclusive rights to a single company, there are no other firms in the market, which disqualifies it from being an oligopoly.

Conclusion

The patent awarded to the pharmaceutical company ensures that it is the only producer of the drug for the next 20 years, making it a clear example of a monopoly. Other market structures fail to apply in this context, as they all require the presence of multiple competitors, which is not the case here. Thus, option B is the definitive correct answer.