Author Question: Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler can ... (Read 57 times)

SO00 · **on:** Jun 29, 2018

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 · **Reply #1 on:** Jun 29, 2018

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.