CFA Practice Question

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CFA Practice Question

Economic analysis suggests that patent laws, which can often be used to limit the entry of potential competitors into an industry, ______
A. may grant temporary monopoly power, but the existence of such laws may also encourage innovation and the development of many items highly valued in society.
B. may be a source of business monopoly power and also discourage innovation and the development of cost-reducing production techniques in the long run.
C. encourage product development and the adoption of cost-reducing technologies in the short run but in the long run generally lead to business monopoly.
Explanation: Patents provide inventors with an incentive to conduct research and development in the pursuit of new products and innovations. The incentive is that if the inventor creates a desirable product, he or she will have a monopoly on its production for 17 years.

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