A drug company introduces a drug which is protected by a patent. Therefore, it is a monopoly in that specific market. Suppose that inverse demand for the drug is given by P(y) = 100 − y/2. And cost function is C(y) = y2 + 10y + 100. a. What is the profit maximizing output and price? b. Calculate the profit, consumer’s surplus, producer’s surplus and the deadweight loss. Suppose that the patent expires and the market becomes perfectly competitive. c. Find the profit maximizing output and price. And compare your answer with (a). d. Calculate the profit, consumer’s surplus, producer’s surplus and the deadweight loss. And compare your answer with (b).
A drug company introduces a drug which is protected by a patent. Therefore, it is a monopoly in that specific market. Suppose that inverse demand for the drug is given by P(y) = 100 − y/2. And cost function is C(y) = y2 + 10y + 100. a. What is the profit maximizing output and price? b. Calculate the profit, consumer’s surplus, producer’s surplus and the deadweight loss. Suppose that the patent expires and the market becomes perfectly competitive. c. Find the profit maximizing output and price. And compare your answer with (a). d. Calculate the profit, consumer’s surplus, producer’s surplus and the deadweight loss. And compare your answer with (b).
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.1P
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A drug company introduces a drug which is protected by a patent. Therefore,
it is a
given by P(y) = 100 − y/2. And cost function is C(y) = y2 + 10y + 100.
a. What is the profit maximizing output and
b. Calculate the profit,
Suppose that the patent expires and the market becomes
c. Find the profit maximizing output and price. And compare your answer with
(a).
d. Calculate the profit, consumer’s surplus, producer’s surplus and the
deadweight loss. And compare your answer with (b).
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