3.4. EZJOINT. After spending 10 years and $1.5 billion, you have finally gotten Food and Drug Administration (FDA) approval to sell your new patented wonder drug, which reduces the aches and pains associated with aging joints. You will market this drug under the brand name of EZjoint. Market research indicates that the demand elasticity for EZjoint is -1.25 (at all points on the demand curve). You estimate the marginal cost of manufacturing and selling one more dose of EZjoint is $1. (a) What is the profit-maximizing price per dose of EZjoint? (b) Would you expect the elasticity of demand you face for EZjoint to rise or fall when your patent expires? Suppose that, after patent expiry, a generic version of EZjoint was introduced in the market (under the chemical name clorophospartane). Reacting to entry, EZjoint decided to increase price.

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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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It is question 3.4 ezjoint
#3.3.
Two years ago, KindOfBlue jeans were priced at $72 and
121,000 units were sold. Last year, the price was lowered to $68 and sales increased
to 132,000.
(a) Estimate the value of the demand elasticity.
(b) Based on your estimate of the demand elasticity, how many units would you
expect to be sold if price were lowered by an additional $1?
(c) In order to increase profits, should price be lowered below $68? If your
answer begins - as it should! - with "it depends," indicate as clearly as
possible what additional information you would need and how you would
base your answer on such additional information.
13.4. EZJOINT. After spending 10 years and $1.5 billion, you have finally gotten Food
and Drug Administration (FDA) approval to sell your new patented wonder drug, which
reduces the aches and pains associated with aging joints. You will market this drug
under the brand name of EZjoint. Market research indicates that the demand elasticity
for EZjoint is -1.25 (at all points on the demand curve). You estimate the marginal cost
of manufacturing and selling one more dose of EZjoint is $1.
(a) What is the profit-maximizing price per dose of EZjoint?
(b) Would you expect the elasticity of demand you face for EZjoint to rise or fall
when your patent expires?
Suppose that, after patent expiry, a generic version of EZjoint was introduced in the
market (under the chemical name clorophospartane). Reacting to entry, EZjoint decided
to increase price.
(c) Can this behavior be consistent with rational profit maximizing?
3.5. LAS-0-VISION. Las-O-Vision is the sole producer of holographic TVs, 3DTVs. The
weekly demand for 3DTVs is D(p) = 10200 - 100 p. The cost of producing q 3DTVs per
week is of/2 (note this implies that MC = q).
(a) What is Las-O-Vision's total revenue schedule?
(b) What is Las-O-Vision's marginal revenue schedule?
Transcribed Image Text:#3.3. Two years ago, KindOfBlue jeans were priced at $72 and 121,000 units were sold. Last year, the price was lowered to $68 and sales increased to 132,000. (a) Estimate the value of the demand elasticity. (b) Based on your estimate of the demand elasticity, how many units would you expect to be sold if price were lowered by an additional $1? (c) In order to increase profits, should price be lowered below $68? If your answer begins - as it should! - with "it depends," indicate as clearly as possible what additional information you would need and how you would base your answer on such additional information. 13.4. EZJOINT. After spending 10 years and $1.5 billion, you have finally gotten Food and Drug Administration (FDA) approval to sell your new patented wonder drug, which reduces the aches and pains associated with aging joints. You will market this drug under the brand name of EZjoint. Market research indicates that the demand elasticity for EZjoint is -1.25 (at all points on the demand curve). You estimate the marginal cost of manufacturing and selling one more dose of EZjoint is $1. (a) What is the profit-maximizing price per dose of EZjoint? (b) Would you expect the elasticity of demand you face for EZjoint to rise or fall when your patent expires? Suppose that, after patent expiry, a generic version of EZjoint was introduced in the market (under the chemical name clorophospartane). Reacting to entry, EZjoint decided to increase price. (c) Can this behavior be consistent with rational profit maximizing? 3.5. LAS-0-VISION. Las-O-Vision is the sole producer of holographic TVs, 3DTVs. The weekly demand for 3DTVs is D(p) = 10200 - 100 p. The cost of producing q 3DTVs per week is of/2 (note this implies that MC = q). (a) What is Las-O-Vision's total revenue schedule? (b) What is Las-O-Vision's marginal revenue schedule?
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