If the patent already expired, how can the company still earn positive economic profits?
After a patent expires, generic manufacturers are generally allowed to enter and sell the same drug. That usually drives prices down toward marginal cost, eliminating economic profits in the long run.
So, if the company is still earning positive economic profits after expiration, it typically means one of these situations is present:
- Some form of continued exclusivity still applies (for example, regulatory protections that delay generic competition).
- The “antibiotic” may not be an exact same substitute (for example, formulation, delivery method, or manufacturing process differences that keep competition limited).
- The firm has market power from factors other than patent protection (for example, entrenched procurement contracts or payer formulary placement that delays switching, even if legal exclusivity is gone).
- There is ongoing litigation or a delay in generic entry (the patent may have expired, but disputes can still affect entry timing).
What does the most common answer usually assume in textbook economics?
Most standard treatments of patent expiration assume that:
1) the patent’s exclusivity ends, and
2) generics enter, and
3) price competition eliminates economic profits over time.
Under that model, the “most likely” implication is that the company should not be earning positive economic profits in the long run after patent expiry, unless an additional barrier to entry exists.
Could “positive economic profits” persist temporarily right after expiration?
Yes. Even without legal exclusivity, there can be a short-run period where generics have not entered yet (due to approval lead times, contracting, supply readiness, or logistics). During that transition window, economic profits can remain positive.
What would an exam-style “most likely” conclusion be?
If the question is asking what must be true given that the firm is earning positive economic profits after patent expiration, the typical answer is that:
- additional protections or entry barriers are still preventing full generic competition, or
- generics have not yet entered (so the firm’s profits are temporary rather than long-run).
If you paste the full multiple-choice options (or the rest of the question), I can tell you which option matches the economic logic most closely.