Pharma Inc. has created a new drug and acquired patent protection, meaning that Pharma will have the sole right to sell the drug for a ten year period. The annual variable costs (VC) of producing the drug at facilities in the U.S. is given by the following equation: VC $2.5*Q +3Q2/20m where Q is doses and m stands for "millions." Annual demand for the drug in the U.S. is given by the following expression, where PUS is the price per dose and QdUS is the quantity demanded at that price: QUS 100m - 10m*PUS (a) To maximize profits, what price (PUS) should Pharma Inc. set for their new drug, and what should their annual sales targets (QUS) in the U.S. be? What will be Pharma's annual operating profits in the first year? (b) Suppose the fixed costs that were associated with research and development of the drug totaled $500 million. Explain the implications of this R&D expense for your recommendations for price and sales targets in Part (a).
Pharma Inc. has created a new drug and acquired patent protection, meaning that Pharma will have the sole right to sell the drug for a ten year period. The annual variable costs (VC) of producing the drug at facilities in the U.S. is given by the following equation: VC $2.5*Q +3Q2/20m where Q is doses and m stands for "millions." Annual demand for the drug in the U.S. is given by the following expression, where PUS is the price per dose and QdUS is the quantity demanded at that price: QUS 100m - 10m*PUS (a) To maximize profits, what price (PUS) should Pharma Inc. set for their new drug, and what should their annual sales targets (QUS) in the U.S. be? What will be Pharma's annual operating profits in the first year? (b) Suppose the fixed costs that were associated with research and development of the drug totaled $500 million. Explain the implications of this R&D expense for your recommendations for price and sales targets in Part (a).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Pharma Inc. has created a new drug and acquired
patent protection, meaning that Pharma will have the
sole right to sell the drug for a ten year period.
The annual variable costs (VC) of producing the drug at
facilities in the U.S. is given by the following equation:
VC $2.5*Q +3Q2/20m
where Q is doses and m stands for "millions." Annual
demand for the drug in the U.S. is given by the
following expression, where PUS is the price per dose
and QdUS is the quantity demanded at that price:
QUS 100m - 10m*PUS
(a) To maximize profits, what price (PUS) should
Pharma Inc. set for their new drug, and what should
their annual sales targets (QUS) in the U.S. be? What
will be Pharma's annual operating profits in the first
year?
(b) Suppose the fixed costs that were associated with
research and development of the drug totaled $500
million. Explain the implications of this R&D expense for
your recommendations for price and sales targets in
Part (a).
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