2. Acme Pharmaceutical Company discovers a vaccine that prevents thecommon cold and has a patent that grants it a monopoly on thisdrug. Acme has plants in both the North America and Europe andcan manufacture the drug on either continent at a marginal cost of$10. Assume there are no fixed costs. In Europe, the demand for thedrug is QE = 70 - PE, where QE is the quantity demanded when theprice in Europe is PE. In North America the demand for the drug isQN 110 PN, where QN is the quantity demanded when the pricein North America is PN= (d) Calculate total surplus, which is consumer plus producer sur-plus/profits, under each scenario b) and c). Will total surplus behigher with price discrimination or without price discrimination?Will the firm sell the drug on both continents in both scenarios?(e) Consider the problem with the following change. Suppose thedemand for the drug in Europe declines to QE = 30 - PE. If thefirm cannot price discriminate, now will it be in the firms interestto sell on both continents?(f) Say now that the patent on the vaccine expires and generic manu-facturers can enter the market and produce the drug at the samemarginal cost. Assume that there are many generic drug compa-nies, and that competition is very high. What will be the equilib-rium price of the drug in this case? Compute total consumer andproducer surplus/profits in both markets in this case and compareit to d). Comment on the differences.

A monopoly firm operates in 2 markets:North AmericaEuropeCostsMC=$10No Fixed CostsDemand functionsQE…

Acme Pharmaceutical Company discovers a vaccine that prevents the common cold and has a patent that grants it a monopoly on this drug. Acme has plants in both the North America and Europe and can manufacture the drug on either continent at a marginal cost of $10. Assume there are no fixed costs. In Europe, the demand for the drug is QE 70 - PE, where Qe is the quantity demanded when the price in Europe is PE. In North America the demand for the drug is 110 — PN, where QN is the quantity demanded when the price in North America is PN E QN =

Acme Pharmaceutical Company discovers a vaccine that prevents the common cold and has a patent that grants it a monopoly on this drug. Acme has plants in both the North America and Europe and can manufacture the drug on either continent at a marginal cost of $10. Assume there are no fixed costs. In Europe, the demand for the drug is QE 70 - PE, where Qe is the quantity demanded when the price in Europe is PE. In North America the demand for the drug is 110 — PN, where QN is the quantity demanded when the price in North America is PN E QN =

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

You are considering entering a market serviced by a monopolist You are considering entering a market serviced by a monopolist. You currently earn $0 economic profits, while the monopolist earns $5. If you enter the market and the monopolist engages in a price war, you will lose $5 and the monopolist will earn $1. If the monopolist doesn’t engage in a price war, you will each earn profits of $2.There are two possible solutions or equilibria. What are they? You are considering entering a market serviced by a monopolist
Unique Creations holds a monopoly position in the production and sale of magnometers. The cost function facing Unique is estimated to be TC=$100,000+20QTC=$100,000+20� What is the marginal cost (MC) for Unique? If the price elasticity of demand for Unique is currently –1.5, what price should Unique charge? What is the marginal revenue (MR) at the price computed? If a competitor develops a substitute for the magnometer and the price elasticity increases to –2.25, what price should Unique charge?
You are the manager of a monopoly. Your analytics department estimates that a typical consumer’s inverse demand function for your firm’s product is P = 400 −20Q, and your cost function is C(Q) = 120Q.a. Determine the optimal two-part pricing strategy. Per-unit fee: $ Fixed fee: $ b. How much additional profit do you earn using a two-part pricing strategy compared with charging this consumer a per-unit price?
Define monopoly relative to pharmaceutical market power.
When Pfizer registers its latest drug patent application, it will have created a monopoly for that product by restricting ____ a)entry into the market. b)amount of product advertising. c)the number of product compliments. d)demand for the product.
A monopolist is producing an output and charging a price that maximizes its profit when it is unexpectedly confronted with an increase in its fixed costs. In response, a profit-maximizing monopolist will: Raise price to recover a portion of the higher fixed cost Continue to produce the same level of output and make no price change Lower price to ell enough units to cover the higher fixed cost Either raise or lower price depending on the price elasticity of demand.
A monopolist is producing at an output level at which ATC = $50, P = $60, MC = $35, and MR = $45. We can conclude that economic profit cannot be increased. the firm is earning $10 in economic profits. economic profit could be increased by producing more. economic profit could be increased by producing less.
A monopolist book publisher with a constant marginal cost of 2 and no fixed costs sells novels in only two countries. Assume the inverse demand curve in country 1 is given by P₁ = 10-Q and the inverse demand curve in country 2 is given by P₂ = 18-Q Assuming book shipments across countries are banned so that price discrimination occurs. What is the equilibrium price and quantity of books sold by the monopolist in country 1? Continuing to assume price discrimination, what is the equilibrium price and quantity of books sold by the monopolist in country 2? If book imports are permitted in both countries so that price discrimination is impossible, what is the equilibrium price and quantity sold in the two countries combined? P=1, Q=16 P=1, Q=12 P=4, Q=8 11 P=6, Q=6 P=4. Q=14 P=6, Q=12 P=8, Q=10 P=10, Q=8 P=6, Q=20 P=7, Q=20 P=10, Q=8 P=12, Q=6
You are the manager of a monopoly, and your analysts have estimated your demand and cost functions as P = 400 - 4Q and C(Q) = 2,000+ 3Q2, respectively, a . What price-quantity combination maximizes your firm's profits? Instructions: Round your response to the nearest penny (two decimal places). Price: $ Quantity: units b. Calculate the maximum profits. Instructions: Round your response to the nearest penny (two decimal places).
A monopolist hires you to design its pricing policy. After month of doing market research you realize that the own-price elasticity is not the same for different groups of consumers in the market. (a) If group (a) has an own-price elasticity of 2.16 and group (b) 1.26. Assuming that the firm can directly observe an indicator of belonging to groups (a) and (b), what degree of price-discrimination can the monopolist implement? which group will end up paying more? (b) Will producer's surplus increase or decrease with price discrimination? what about consumer surplus? (consider single pricing vs price discrimination) (c) If a you get hold of a magic crystal ball that tells you the exact willingness to pay of each consumer. What type of price discrimination can the monopolist use to maximize profits? is this strategy “efficient” from the point of view of total surplus? are consumers better-off or worse-off? (Hint: A graph can greatly clarify this part.)
Hand written solutions are strictly prohibited
Techvana is the manufacturer of a new drug which they obtained a patent for. The marginal cost of production is $175 per bottle and the elasticity of demand is estimated to be 1.86. What is the optimal price Techvana should charge for a bottle? $94.09 $113.81 $378.49 $325.5 Grizzly Gear manufactures and sells its top tier snowshoes for $1839. Marginal cost of production per pair is $1100 and fixed cost is $362. What is the markup charged on a pair of snowshoes? $1839 $1477 $377 $739