A certain pharmaceutical firm recently developed a new

OFFICIAL EXPLANATION

The argument provides information about the substantial costs associated with the development of Dendadrine. Yet the management views Dendadrine as a highly profitable project. In order to reconcile these claims, we need to demonstrate that the drug will be able to generate profits that will more than compensate for the high initial expenditures associated with its development.

(A) CORRECT. This statement demonstrates that the patent protection is likely to allow the pharmaceutical company to charge the unusually high prices that will more than compensate for the initial research and development costs. Note that the patent protection is likely to result in prices that are at least double the level necessary for the company to recoup its costs, thus leading to substantial profits.

(B) This answer tells us that for some pharmaceutical products, high R&D expenditures are quite typical. While this explains the high costs associated with the development of Dendadrine, it tells us nothing about how well such products do on the market and whether they subsequently become profitable.

(C) This statement makes an emotionally-charged claim about the irrelevance of corporate profits in health-related issues and provides no information that would explain how the pharmaceutical company would be able to make profits on Dendadrine.

(D) This statement would actually reduce the likelihood that the company will be able to make profits on Dendadrine, since the presence of similar products would likely reduce the market share of the firm and put downward pressure on prices.

(E) This statement does not provide information on how the company can make profits on Dendadrine despite the high costs and side effects. In fact, the presence of side effects is likely to reduce rather than increase the profit potential of a drug.

A.

D Only says that there is no competitor,
But conclusion is about making profits, which is clearly stated by A.

Certainly A becos, it says the company will be granted patent protection and therefore can price its new finding even far more than its target price of five times the variable cost.

For people answering A, can you guys please help me out with my query ??

The passage doesnt mentions how effective the drug is or how many users would be using it or what is the other cost of the similar kind of medicines. Even if the drug is being sold at 5 times higher than the expected price, it maybe so that stomach problem being treated by the drug is a rare disease and even with such high cost, the company wont be able to recover the amount.
Please explain your ans with my perspective in view.

Thanks

1. The pharmaceutical firm expects to be granted patent protection for Dendadrine; drugs under patent protection typically sell at prices that are approximately ten times their variable costs. --- CORRECT, because it tells us that D will soon be patented and patented products sell 10 times their variable costs. That will surely be enough to be a major part in firms profits.

2, The development of some pharmaceutical products involves substantial initial expenditures on research, testing, and approval.--- Out of scope. Does not talk about variable costs or revenue...

3. In clinical tests, Dendadrine has proven far more effective at treating severe stomach disorders than any prior available treatments, without any serious side effects. --- Out of Scope. No information about variable costs and the pricing etc. Just tells us that D is going to sell well but we don't know how much money it will make.

4. No competitors are developing or planning to develop new medicines that might compete with Dendadrine in the marketplace. --- Out of Scope. Again even though D will sell well. We have no information on the price and variable costs of D.

5. Millions of people suffer from severe stomach disorders, representing an estimated one to two billion dollars every year in revenue. --- Okay. D will probably make up the 5 billion in a few years. But do we know what are the variable costs of D. For example, what if storing D costs another $5 billion a year and on top of that transporting D in a high security, cool temperature trucks cost another $5 billion a year. Now do we know for sure that even though it is expected to earn 1-2 billion, it will make up for all the variable costs...

Check out this link with the same question and more explanations...
a-certain-pharmaceutical-firm-recently-developed-a-new-105428.html

Hope that helps.

A. The pharmaceutical firm has been granted a patent to become the sole producer and distributor of Dendadrine, and drugs under patent protection typically sell at prices that are at least 10 times greater than their variable costs.
Must be correct answer because it resolves the paradox of profitability. Read others to further prove first choice.

B. Development of some pharmaceutical products involves substantial initial expenditures on research, testing, and approval.
Wrong. It no more than explains why the drug is so expensive.

C. In issues related to personal health, corporate profits should not become the primary consideration.
Out of scope. Does not solve the paradox of profitability.

D. Several other pharmaceutical companies are working on new medicines that may become effective substitutes for Dendadrine.
Weakens. Effective substitutes would interfere with the drug's profitability.

E. While Dendadrine can be highly effective in treating stomach disorders; it may also result in serious side effects such as dizziness and hallucinations.
Weakens. If serious side effects occurs, then the drug will not likely be profitable.

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