« previous next »

Author Question: The SSS Co has a patent on a particular medication. The medication sells for 1 per daily dose and ... (Read 66 times)

Pineapplelove6

  • Hero Member
  • *****
  • Posts: 560
on: Jul 1, 2018
The SSS Co has a patent on a particular medication. The medication sells for 1 per daily dose and marginal cost is estimated to be a constant at 0.20. Assuming linear demand and marginal cost curves, use this information to estimate the deadweight loss from monopoly pricing if the firm currently sells 1,000 doses per day. Can this loss be justified?
 
  What will be an ideal response?

Question 2

Assuming a horizontal long-run market supply curve, which of the following statements is (are) TRUE about competitive firms in the long run?
 
  A) p = MC
  B) p = AC
  C) profit = 0
  D) All of the above.
Microeconomics ¦ Perloff ¦ 8th Edition
Buy Test-Bank


InfiniteSteez

  • Sr. Member
  • ****
  • Posts: 340
Reply #1 on: Jul 1, 2018
Answer to Question 1

The firm's Lerner Index equals 0.8 which implies an elasticity of -1.25. To solve for the slope of the demand curve, set -1.25 = (dQ/dp)  (p/Q) or dQ/dp = -1250. The demand curve is Q = a - 1250p. Since we know that Q = 1000 when p = 1, a = 2250. Thus the demand curve is Q = 2250 - 1250p. This implies that Q would be 2000 if the market were competitive and price were 0.20. The deadweight loss per day is (1 - 0.20 )  (2000 - 1000 )/2 = 400. This loss can be justified on the grounds that had the patent not been issued, the medication might not exist at all.

Answer to Question 2

D


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

Blood in the urine can be a sign of a kidney stone, glomerulonephritis, or other kidney problems.

Did you know?

Amphetamine poisoning can cause intravascular coagulation, circulatory collapse, rhabdomyolysis, ischemic colitis, acute psychosis, hyperthermia, respiratory distress syndrome, and pericarditis.

Did you know?

It is believed that the Incas used anesthesia. Evidence supports the theory that shamans chewed cocoa leaves and drilled holes into the heads of patients (letting evil spirits escape), spitting into the wounds they made. The mixture of cocaine, saliva, and resin numbed the site enough to allow hours of drilling.

Did you know?

Drug abusers experience the following scenario: The pleasure given by their drug (or drugs) of choice is so strong that it is difficult to eradicate even after years of staying away from the substances involved. Certain triggers may cause a drug abuser to relapse. Research shows that long-term drug abuse results in significant changes in brain function that persist long after an individual stops using drugs. It is most important to realize that the same is true of not just illegal substances but alcohol and tobacco as well.

Did you know?

In the United States, congenital cytomegalovirus causes one child to become disabled almost every hour. CMV is the leading preventable viral cause of development disability in newborns. These disabilities include hearing or vision loss, and cerebral palsy.

Box stalls in a barn or stable should be of sturdy construction and cleaned daily Box stalls in a barn or stable should be of sturdy construction and cleaned daily
Photograph of an occupational therapist assisting a patient with learning independence in activities Photograph of an occupational therapist assisting a patient with learning independence in activities
U.S. adults from 25 to 74 years report that the largest proportion of their daily stressors arise ... U.S. adults from 25 to 74 years report that the largest proportion of their daily stressors arise ...
Dose-response curve with threshold Dose-response curve with threshold
How Many Calories Do You Need Daily? How Many Calories Do You Need Daily?
Have at least one citrus fruit (such as an orange or grapefruit) daily Have at least one citrus fruit (such as an orange or grapefruit) daily
Video: Dendrite Animation

For a complete list of videos, visit our video library