Prime Pharmaceuticals has developed a new asthma medicine, for ...

[SO00]

Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler can be produced at a constant marginal cost of 2/inhaler.
 
  The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a monopoly for its new inhaler, if Prime Pharmaceuticals operates as a single-price monopoly, then there will be a deadweight loss equal to A) 24 million.
  B) zero.
  C) 16 million.
  D) 32 million.

Question 2

Define the efficient scale of production. For the situation of a firm in monopolistic competition, discuss its excess capacity.
 
  What will be an ideal response?

[chereeb]

Answer to Question 1

C

Answer to Question 2

The efficient scale is the quantity produced when average total cost is at its minimum. In the long run, a firm in monopolistic competition operates below the efficient scale when maximizing profits. The difference between the efficient scale and the quantity produced by a firm is the excess capacity. Because the firm is not producing at the efficient scale, its average total cost is higher than if it produced at the efficient scale.

[SO00]

TYSM

[tanna.moeller]

Gracias!