The diagram below shows the demand curve and marginal cost and marginal revenue curves for a new heart medication for which the pharmaceutical firm holds a 20-year patent on its production and sales. This protection gives the firm monopoly power for the 20 years of the patent.
FIGURE 10-9
Refer to Figure 10-9. Suppose this pharmaceutical firm is charging a single price for its drug and is maximizing its profits. If it then begins to perfectly price discriminate among its buyers and maximizes its profits by doing so, it will
◦ reduce its producer surplus by areas C + F + H.
◦ generate an increase in producer surplus equal to areas D + E + H + I.
◦ cause a loss of economic surplus to society as a whole.
◦ decrease its total output.
◦ no longer be equating MR and MC.
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