For people with life-threatening allergies, carrying a device that can automatically inject epinephrine (called an autoinjector) is a necessity. In the summer of 2016, Mylan, the maker of the widely used autoinjector EpiPen, found itself with a virtual monopoly. A year earlier its primary competitor, Auvi-Q, was recalled amid fears that it would malfunction and deliver the wrong dose. In addition, the FDA denied the drug producer, Teva, from releasing a generic autoinjector. Prior to these events, a two-pack EpiPen sold for approximately $100. But during that summer, Mylan raised the price to over $650 per pack, leading to extensive news coverage, popular online petitions, and outrage on the part of consumers. Mylan countered that many consumers received their EpiPens through their medical insurance, hence they were protected from the price increase. For those who didn't have insurance coverage and had to pay the full price, Mylan offered a $300 savings card. a. In the graph, shade the area representing consumer surplus (CS-C) in a competitive market for epinephrine autoinjectors. Firms have a constant marginal cost of $100 per pack. Price 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quantity (in thousands) MR ▲ CS-C CS-M PS-M DWL-M MC=ATC D
For people with life-threatening allergies, carrying a device that can automatically inject epinephrine (called an autoinjector) is a necessity. In the summer of 2016, Mylan, the maker of the widely used autoinjector EpiPen, found itself with a virtual monopoly. A year earlier its primary competitor, Auvi-Q, was recalled amid fears that it would malfunction and deliver the wrong dose. In addition, the FDA denied the drug producer, Teva, from releasing a generic autoinjector. Prior to these events, a two-pack EpiPen sold for approximately $100. But during that summer, Mylan raised the price to over $650 per pack, leading to extensive news coverage, popular online petitions, and outrage on the part of consumers. Mylan countered that many consumers received their EpiPens through their medical insurance, hence they were protected from the price increase. For those who didn't have insurance coverage and had to pay the full price, Mylan offered a $300 savings card. a. In the graph, shade the area representing consumer surplus (CS-C) in a competitive market for epinephrine autoinjectors. Firms have a constant marginal cost of $100 per pack. Price 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quantity (in thousands) MR ▲ CS-C CS-M PS-M DWL-M MC=ATC D
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:For people with life-threatening allergies, carrying a device that can automatically inject epinephrine (called an autoinjector) is a
necessity. In the summer of 2016, Mylan, the maker of the widely used autoinjector EpiPen, found itself with a virtual
monopoly. A year earlier its primary competitor, Auvi-Q, was recalled amid fears that it would malfunction and deliver the
wrong dose. In addition, the FDA denied the drug producer, Teva, from releasing a generic autoinjector. Prior to these events, a
two-pack EpiPen sold for approximately $100. But during that summer, Mylan raised the price to over $650 per pack, leading to
extensive news coverage, popular online petitions, and outrage on the part of consumers. Mylan countered that many consumers
received their EpiPens through their medical insurance, hence they were protected from the price increase. For those who didn't
have insurance coverage and had to pay the full price, Mylan offered a $300 savings card.
a. In the graph, shade the area representing consumer surplus (CS-C) in a competitive market for epinephrine autoinjectors.
Firms have a constant marginal cost of $100 per pack.
Price
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Quantity (in thousands)
MR
▲ CS-C
CS-M
PS-M
DWL-M
MC=ATC
D
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