Final answer:
Pharmaceuticals with high fixed costs benefit from price discrimination as it enables them to cover the substantial initial R&D costs and ensure medication is available to a larger audience. This practice also supports future investment in new products.
Step-by-step explanation:
Pharmaceuticals with high fixed costs can benefit from the practice of price discrimination because it allows them to maximize profits by charging different prices to different groups of consumers. In the pharmaceutical industry, significant investments are required for research and development (R&D), and these costs are fixed because they must be paid regardless of how much medication is eventually sold. Once the medication is developed, the marginal cost of producing additional units is relatively low. Therefore, by charging higher prices to those willing to pay more—perhaps in wealthier countries—and lower prices in less affluent areas, the pharmaceutical company can cover its fixed costs and still make the medication accessible to a broader range of consumers.
This strategy not only helps the company in recovering the significant initial investment but also allows the company to invest in the development of new drugs. On the flip side, if firms are unable to practice price discrimination effectively, they might not recoup the high fixed costs, resulting in less investment in new products, as represented by a decrease in financial capital between Dprivate and Dsocial.