1) A firm is considering buying a patent that would give it a monopoly over sale of a new drug. If it buys the patent, the demand curve is it would face for its product is P = 10 – q, and it would have zero marginal costs of production and no other fixed costs. If the firm anticipates setting a single price to all consumers, what is the most that it would be willing to pay for the patent? 2) A firm is considering buying a patent that would give it a monopoly over sale of a new drug. If it buys the patent, the monopolist’s demand curve would be P = 10 – q, and it would have zero marginal costs of production and no other fixed costs. The firm also anticipates that the government will regulate the market in the following way: the government will set a maximum price of $4 per unit. In addition, the government will provide a subsidy to the monopolist equal to the increase in consumer surplus between the outcome in which the monopolist sets its profit-maximising price and in the market with the government price regulation. What is the maximum the monopolist is will be willing to pay for the patent?
1) A firm is considering buying a patent that would give it a monopoly over sale of a new drug. If it buys the patent, the
2) A firm is considering buying a patent that would give it a monopoly over sale of a new drug. If it buys the patent, the monopolist’s demand curve would be P = 10 – q, and it would have zero marginal costs of production and no other fixed costs. The firm also anticipates that the government will regulate the market in the following way: the government will set a maximum price of $4 per unit. In addition, the government will provide a subsidy to the monopolist equal to the increase in
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