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 he 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. PRICE (Dolars per EpiPen) 1000 900 800 700 600 500 400 300 200 100 0 0 1 2 3 MR 5 6 7 QUANTITY (Thousands of EpiPens) ATC -мс D Mylan continues to charge $150 per EpiPen, Mylan will earn 10 at $150 Profit Max ATC at Profit Max economic profit. True or False: Given the demand curve for EpiPens, you should tell Mylan's CEO that total revenue will increase if she raises the price of EpiPens because the demand curve in this region is relatively elastic.
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 he 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. PRICE (Dolars per EpiPen) 1000 900 800 700 600 500 400 300 200 100 0 0 1 2 3 MR 5 6 7 QUANTITY (Thousands of EpiPens) ATC -мс D Mylan continues to charge $150 per EpiPen, Mylan will earn 10 at $150 Profit Max ATC at Profit Max economic profit. True or False: Given the demand curve for EpiPens, you should tell Mylan's CEO that total revenue will increase if she raises the price of EpiPens because the demand curve in this region is relatively elastic.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![**Educational Content on Pricing Strategy for EpiPens**
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.
**Graph Explanation**
The graph illustrates several curves:
- **Marginal Cost (MC)**: This is assumed to be constant throughout. On the graph, it appears as a horizontal orange line at $100.
- **Average Total Cost (ATC)**: This is represented by a green U-shaped curve. It shows the average cost per unit at different levels of production.
- **Demand Curve (D)**: This is the dark black downward-sloping line. It indicates the quantity of EpiPens demanded at each price level.
- **Marginal Revenue Curve (MR)**: This is represented by a blue downward-sloping line. It shows the additional revenue earned for each additional unit sold.
**Key Chart Points**
- **Star Symbol (Q_D at $150)**: Indicates the quantity of EpiPens demanded if Mylan continues to charge $150.
- **Diamond Symbol (Profit Max)**: Represents the profit-maximizing quantity and price.
- **Triangle (ATC at Profit Max)**: Shows the average total cost at the profit-maximizing quantity.
- **Green Zone (Profit)**: Illustrates the area representing the profit earned.
**Task**
If Mylan continues to charge $150 per EpiPen, Mylan will earn [Choose: positive/negative/zero] economic profit.
**True or False Question**
Given the demand curve for EpiPens, you should tell Mylan’s CEO that total revenue will increase if she raises the price of EpiPens because the demand curve in this region is relatively elastic.
- [ ] True
- [ ] False
**Further Instructions**
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc95172cb-6a1e-46ac-bc11-5ce704c39731%2Fe8af37f0-821e-4dc5-a30c-1a47e82862cc%2Fydukys_processed.png&w=3840&q=75)
Transcribed Image Text:**Educational Content on Pricing Strategy for EpiPens**
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.
**Graph Explanation**
The graph illustrates several curves:
- **Marginal Cost (MC)**: This is assumed to be constant throughout. On the graph, it appears as a horizontal orange line at $100.
- **Average Total Cost (ATC)**: This is represented by a green U-shaped curve. It shows the average cost per unit at different levels of production.
- **Demand Curve (D)**: This is the dark black downward-sloping line. It indicates the quantity of EpiPens demanded at each price level.
- **Marginal Revenue Curve (MR)**: This is represented by a blue downward-sloping line. It shows the additional revenue earned for each additional unit sold.
**Key Chart Points**
- **Star Symbol (Q_D at $150)**: Indicates the quantity of EpiPens demanded if Mylan continues to charge $150.
- **Diamond Symbol (Profit Max)**: Represents the profit-maximizing quantity and price.
- **Triangle (ATC at Profit Max)**: Shows the average total cost at the profit-maximizing quantity.
- **Green Zone (Profit)**: Illustrates the area representing the profit earned.
**Task**
If Mylan continues to charge $150 per EpiPen, Mylan will earn [Choose: positive/negative/zero] economic profit.
**True or False Question**
Given the demand curve for EpiPens, you should tell Mylan’s CEO that total revenue will increase if she raises the price of EpiPens because the demand curve in this region is relatively elastic.
- [ ] True
- [ ] False
**Further Instructions**
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.
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