Question

Connor and Duncan have two passions: video games and economics. The two have an ongoing debate: Connor argues that video game consumers are harmed by the fact that a relatively small number of studios produce video games. The marginal cost of producing additional copies of popular video games is almost always extremely low, relative to the price these firms charge. This causes a deadweight loss. Connor wants the government to stop enforcing video game patents, so that prices will be more closely aligned with the marginal cost. Duncan thinks that consumers would be worse off if the government were to adopt this approach. Which of the following most strongly supports Duncan's thinking that patents are necessary?
1) Anarchy is often a result of nations not enforcing patents.
2) The government should never be involved in the provision of a good or service.
3) Strong patent enforcement can lead to higher profits, which are directly related to lower wages.
4) Patent enforcement varies by country.
5) Nations with strong patent protection are associated with lower levels of per capita GDP.
6) Patents give firms an incentive to spend money on research and development.

Answer 1

Answer:

d. Patents give firms an incentive to spend money on research and development.

Explanation:

Connor argues that the consumers are worse off due to the high prices as a result of patents. The prices would be much lower if patents were not applicable because the MC per unit is always low.

But as Connor argues patents provide an uncentive to producers to invest in R & D whch benfits the consumers in the LR both in terms of product variety and cost reduction.