Suppose a pharmaceutical firm just invents a new drug to treat mad cow disease and this is the only effective drug available in the market. The demand and total cost functions of the firm are: Demand: P = 36 – Q Total cost: C = 24 + 2Q2 where P is the price of the drug,Q is the quantity of the drug and C is the total cost of the firm.   Draw a diagram to show the price, output and profit of the firm. Label your diagram clearly.  Suppose the pharmaceutical firm needs to spend a lump sum of $M to apply for the patent of the drug. Explain whether this cost of patent affects the price, output and profit of the firm.

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