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The correct answer is that the initial sunk cost maybe high for the rare drugs, but the marginal costs are low in comparison.
The production of drugs for rare diseases is frequently characterized by high R&D costs. This means that the fixed costs are substantial. However, the incremental cost of producing drugs continues to fall as fixed costs are spread over the quantity of drug produced over time. The manufacturing company can patent the drugs and even receive subsidies for research and development at times. This implies that while the initial sunk cost for rare drugs may be high, the marginal costs are low in comparison.Furthermore, the patients who are taking these drugs are on long-term prescriptions because their health condition is often chronic. This means that patients will continue to take these drugs for a long time, and there will be little or no competition in the drug's production. This means that the marginal benefits of production are greater than the marginal costs.
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