4. A pharmaceutical firm is marketing a patented drug it has developed (the firm therefore has monopoly rights over the drug). The demand for the drug is given by Q = 8000 - 8P (MR(Q) = 1000 - = 8000 - 8P (MR(Q) = 1000 - ), where P is the price of the drug (in cents), and the total cost of production is TC(Q) = Q2+100Q+10000 (MC(Q) = 2Q + 100). a. Calculate the (monopoly) price of the drug, PM, and the quantity sold, QM b. Suppose now that the drug's patent expires, and other pharmaceutical firms can begin producing it. Assume this result in a competitive supply of the drug, and calculate the long-run competitive equilibrium price and aggregate quantity. Compare these to those you found in part a. c. Using a diagram, compare the consumer surplus between parts (a) and (b). In which case is the consumer surplus higher? Why do you think the patent would have been granted in the first place?
4. A pharmaceutical firm is marketing a patented drug it has developed (the firm therefore has monopoly rights over the drug). The demand for the drug is given by Q = 8000 - 8P (MR(Q) = 1000 - = 8000 - 8P (MR(Q) = 1000 - ), where P is the price of the drug (in cents), and the total cost of production is TC(Q) = Q2+100Q+10000 (MC(Q) = 2Q + 100). a. Calculate the (monopoly) price of the drug, PM, and the quantity sold, QM b. Suppose now that the drug's patent expires, and other pharmaceutical firms can begin producing it. Assume this result in a competitive supply of the drug, and calculate the long-run competitive equilibrium price and aggregate quantity. Compare these to those you found in part a. c. Using a diagram, compare the consumer surplus between parts (a) and (b). In which case is the consumer surplus higher? Why do you think the patent would have been granted in the first place?
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.5P
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Transcribed Image Text:4. A pharmaceutical firm is marketing a patented drug it has developed
(the firm therefore has monopoly rights over the drug). The demand for
the drug is given by Q = 8000 - 8P (MR(Q) = 1000 -
= 8000 - 8P (MR(Q) = 1000 - ), where P is the
price of the drug (in cents), and the total cost of production is TC(Q) =
Q2+100Q+10000 (MC(Q) = 2Q + 100).
a. Calculate the (monopoly) price of the drug, PM, and the quantity
sold, QM
b. Suppose now that the drug's patent expires, and other pharmaceutical
firms can begin producing it. Assume this result in a competitive supply
of the drug, and calculate the long-run competitive equilibrium price and
aggregate quantity. Compare these to those you found in part a.
Transcribed Image Text:c. Using a diagram, compare the consumer surplus between parts (a)
and (b). In which case is the consumer surplus higher? Why do you think
the patent would have been granted in the first place?
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