News Analysis: Market Power and the EpiPenConsider the pharmaceutical company Mylan that produces epinephrine injection devices called EpiPens. In the presence of other firms producingsubstitutes for this good, the price of EpiPens is $150.Now suppose that competitors to Mylan no longer produce epinephrine injection devices, so Mylan now has pricing power in this market. As theeconomist on staff at Mylan, you are charged with the task of figuring out what your company's new pricing strategy should be.The following graph shows the marginal cost (MC), which is assumed to be constant, and the average total cost (ATC) of Mylan. The graph also showsthe demand curve (D) for EpiPens and the marginal revenue curve (MR) once the firm has market power.On the graph, use the grey point (star symbol) to indicate the quantity of EpiPens demanded if Mylan continues to charge $150. Dashed drop lines willautomatically extend to both axes.1000900Q at $150800700Profit Max600500400ATC at Profit Max300200Profit1000PRICE (Dollars per EpiPen)01MR235678QUANTITY (Thousands of EpiPens)DATCMC910 If Mylan continues to charge $150 per EpiPen, Mylan will earneconomic profit.True or False: Given the demand curve for EpiPens, you should tell Mylan's CEO that total revenue will increase if she raises the price of EpiPensbecause the demand curve in this region is relatively elastic.O TrueFalseOn the previous graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Dashed drop lines will automaticallyextend to both axes.On the previous graph, use the purple point (diamond symbol) to indicate the average total cost at the profit-maximizing quantity. Then use the greenrectangle (triangle symbols) to shade the area indicating the firm's economic profit.

Introduction Here cost and revenue of a pharmaceutical Mylan have given. Mylan produces an injection…

If Mylan continues to charge $150 per EpiPen, Mylan will earn economic profit. True or False: Given the demand curve for EpiPens, you should tell Mylan's CEO that total revenue will increase if she raises the price of EpiPens because the demand curve in this region is relatively elastic. O True False

If Mylan continues to charge $150 per EpiPen, Mylan will earn economic profit. True or False: Given the demand curve for EpiPens, you should tell Mylan's CEO that total revenue will increase if she raises the price of EpiPens because the demand curve in this region is relatively elastic. O True False

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Monopoly

Section: Chapter Questions

Problem 7PA

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