Medilife Ltd. is the only company that makes a certain life-saving drug. Its cost is low, but patients are prepared to pay any amount for it. To protect the public from unfair price fixing, the drug is declared an essential commodity and its price is fixed by the authorities.
Which factor affecting price determination now limits the price that Medilife Ltd. can charge?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Government and legal regulations
Option (1) Extent of competition in the market — Incorrect. Medilife is the only maker of the drug. There is no rival whose price could hold its price down.
Option (2) Government and legal regulations — Correct. To protect the public from unfair pricing, the government can declare a product an essential commodity and regulate its price. This is what has happened, so the regulation now limits what Medilife can charge.
Option (3) Utility and demand — Incorrect. Utility and demand set the upper limit a buyer would pay. Here patients would pay any amount, so this factor puts no limit on the price.
Option (4) Product cost — Incorrect. Product cost sets the floor, the lowest price. It does not stop a firm from charging more.
NCERT (2026-27 Edition):
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