Generic drug makers therefore are competing in the market according to the skills in which they specialize. They specialize in efficient production and distribution of drugs, rather than in developing new drugs. A generic drug maker can go out of business simply on the basis of not executing their business plan well. However, generic producers have built their business plans around the FDA's current set of regulations. A change in those regulations could have an adverse effect on generic drug makers. For example, if the monopoly protections that come from a new drug approval are extended out further, that would reduce the ability of the generic producer to make money on any given drug. This is especially the case of the drug in question becomes obsolete during the time period prior to the generic having access to that market. In such a situation, the generic maker would not have access to that product during its useful economic life. Such extensions of monopoly protections would have to be across board, since most generic producers make hundreds or even thousands of individual drugs.

4. In conditions of perfect competition, it is conceivable that a firm can earn a profit in the short run. In the short run, a change in the market could result in one or more firms earning a profit. However, these profits will signal to other firms to enter the market. When these other firms enter the market, the profit will no longer exist. This is why it is said that there are no long-run profits in a state of perfect competition.

Margins costs in a state of perfect competition are at a point of marginal prices in the long run. If there is a change in the costs, a firm might be able to temporarily exploit this for a profit, but with perfect information consumers will not stand for this. If there is collusion among sellers, the...

Zero profit is better than a loss, so the exit costs of the business are important. It is important to note that in true perfect competition, there are no exit costs. If the price exceeds average variable costs, the firm might continue to operate, however, on the assumption that even if the firm shuts down it must pay fixed costs. If there are no exit barriers, however, that means there are no costs associated with breaking leases, disposing of assets, etc.…so there cannot be ongoing fixed costs if a firm shuts down.
Works Cited:

Vargas, L. (2001). "Maquiladoras: Impact on Texas Border Cities," in the Border Economy, Federal Reserve Bank of Dallas. Retrieved on December 2, 2011 from: http://www.dallasfed.org/research/border/tbe_vargas.html

Investopedia. (2012). Net present value. Investopedia. Retrieved May 18, 2012 from http://www.investopedia.com/terms/n/npv.asp

Investopedia. (2012). Perfect competition. Investopedia. Retrieved May 18, 2012 fromhttp://www.investopedia.com/university/economics/economics6.asp#axzz1vG92KPwm

Whitehouse, J. (2011). How to calculate economic profit with the marginal decision rule. eHow. Retrieved May 18, 2012 from http://www.ehow.com/how_8696173_calculate-profit-marginal-decision-rule.html