Question

If the government grants a patent to the one tofu firm that developed the innovation, what type of market for the newly innovated and differentiated product would result (ie perfect competition, monopolistic competition, oligopoly, or monopoly)? Why would the government do this? What would happen to price and consumer surplus under a patent?

Answer 1

If the government grants a patent to the one tofu firm that developed the innovation, the newly innovated and differentiated product would result in monopoly. It is a form of Market on which there is a single seller of a product with no close substitutes.

Government might do this because:

There can be situation where the competition van turn into ruinous competition.

The other competitors that might try and make the same thing might be inefficient in duplication.

To prevent massive confusions and highly undesirable social outcomes for the Markets.

Under patents, the firm becomes monopoly, and the monopolist tries to increase his profits by restricting the supply of his Product and fixing high price. Thus, th prices increase and the area of consumer surplus decreases.

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