**Title: Understanding Demand Curves and Firm Profitability****Concept Check: EpiPen Pricing and Revenue Implications****Question** True or False: Given the demand curve for EpiPens, you should tell Mylan’s CEO that total revenue will decrease if she raises the price of EpiPens because the demand curve in this region is relatively inelastic.- ○ True - ○ False **Instructions for Graph Analysis**1. **Profit Maximization** - On the previous graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Dashed drop lines will automatically extend to both axes.2. **Economic Profit Calculation** - On the previous graph, use the purple point (diamond symbol) to indicate the average total cost at the profit-maximizing quantity. Then use the green rectangle (triangle symbols) to shade the area indicating the firm’s economic profit.This exercise helps in understanding how changes in pricing affect total revenue, particularly in markets characterized by inelastic demand. It also illustrates how to identify key points and areas on a graph to assess a firm’s economic situation. Consider the pharmaceutical company Mylan that produces epinephrine injection devices called EpiPens. In the presence of other firms producing substitutes for this good, the price of EpiPens is $150.Now suppose that competitors to Mylan no longer produce epinephrine injection devices, so Mylan now has pricing power in this market. As the economist on staff at Mylan, you are charged with the task of figuring out what your company’s new pricing strategy should be.The following graph shows the marginal cost (MC), which is assumed to be constant, and the average total cost (ATC) of Mylan. The graph also shows the demand curve (D) for EpiPens and the marginal revenue curve (MR) once the firm has market power.*On the graph, use the grey point (star symbol) to indicate the quantity of EpiPens demanded if Mylan continues to charge $150. Dashed drop lines will automatically extend to both axes.*### Graph Description- **Axes**: - The vertical axis represents the price in dollars per EpiPen, ranging from $0 to $1000. - The horizontal axis represents the quantity in thousands of EpiPens, ranging from 0 to 10.- **Curves**: - **Demand Curve (D)**: A downward sloping curve. - **Marginal Revenue Curve (MR)**: A downward sloping curve below the demand curve. - **Marginal Cost (MC)**: A horizontal line representing constant marginal cost. - **Average Total Cost (ATC)**: A U-shaped curve above the marginal cost.- **Points & Symbols**: - A grey star symbol marks the quantity demanded at a price of $150. - A purple diamond indicates the profit-maximizing point. - Green arrows show the profit area between the ATC at profit max point and the corresponding point on the price axis.### Economic ConsiderationIf Mylan continues to charge $150 per EpiPen, Mylan will earn _______ economic profit.

please find the answer below.(1) When Price = $150, from the demand curve, Quantity is shown in the graph. At this quantity, the ATC curve lies above the demand curve, so there is a negative profit (loss). (2) FALSE The closer we move along the demand curve towards the horizontal axis, the more inelastic demand is. In this inelastic range, when the price is increased (decreased), total revenue increases (decreases). (3) Profit is maximized when MR & MC curves intersect and profit = Quantity x (Price - ATC), shaded as above.

Business

Economics

1000 900 O, at $150 800 700 600 Profit Max 500 400 ATC at Profit Max 300 200 ATC Profit 100 MC MR 2 3 4 QUANTITY (Thousands of EpiPens) 1 5 6 7 9 10 If Mylan continues to charge $150 per EpiPen, Mylan will earn economic profit. PRICE (Dollars per EpiPen)

1000 900 O, at $150 800 700 600 Profit Max 500 400 ATC at Profit Max 300 200 ATC Profit 100 MC MR 2 3 4 QUANTITY (Thousands of EpiPens) 1 5 6 7 9 10 If Mylan continues to charge $150 per EpiPen, Mylan will earn economic profit. PRICE (Dollars per EpiPen)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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