onsider the pharmaceutical company Mylan that produces epinephrine injection devices called EpiPens. In the presence of other firms producing ubstitutes for this good, the price of EpiPens is $150. ow suppose that competitors to Mylan no longer produce epinephrine injection devices, so Mylan now has pricing power in this market. As the conomist on staff at Mylan, you are charged with the task of figuring out what your company's new pricing strategy should be. he 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. in 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 D 1 True MR 2 3 5 6 7 QUANTITY (Thousands of EpiPens) O False D Mylan continues to charge $150 per EpiPen, Mylan will earn ATC MC 10 Qat $150 Profit Max ATC at Profit Max Profit rue 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 ecause the demand curve in this region is relatively inelastic. economic profit.
onsider the pharmaceutical company Mylan that produces epinephrine injection devices called EpiPens. In the presence of other firms producing ubstitutes for this good, the price of EpiPens is $150. ow suppose that competitors to Mylan no longer produce epinephrine injection devices, so Mylan now has pricing power in this market. As the conomist on staff at Mylan, you are charged with the task of figuring out what your company's new pricing strategy should be. he 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. in 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 D 1 True MR 2 3 5 6 7 QUANTITY (Thousands of EpiPens) O False D Mylan continues to charge $150 per EpiPen, Mylan will earn ATC MC 10 Qat $150 Profit Max ATC at Profit Max Profit rue 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 ecause the demand curve in this region is relatively inelastic. economic profit.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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.
**Graph Explanation:**
The graph illustrates the relationship between price and quantity for Mylan's EpiPens. The axes are labeled as follows:
- **X-axis (Horizontal):** Quantity (Thousands of EpiPens)
- **Y-axis (Vertical):** Price (Dollars per EpiPen)
The curves on the graph are:
- **Demand Curve (D):** Downward sloping, indicating a negative relationship between price and quantity demanded.
- **Marginal Revenue (MR):** Downward sloping, showing the additional revenue from selling one more unit.
- **Marginal Cost (MC):** Horizontal line, indicating constant cost per unit.
- **Average Total Cost (ATC):** U-shaped curve, denoting the cost per unit at different production levels.
Key points:
- **Q₀ at $150:** Uses a star symbol to indicate quantity if the price remains $150.
- **Profit Max:** Point of maximum profit, denoted by a black point.
- **ATC at Profit Max:** The point where ATC intersects the quantity at profit maximization.
- **Profit:** Shaded area representing economic profit.
If Mylan continues to charge $150 per EpiPen, Mylan will earn ________ economic profit.
**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.
- O True
- O False
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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