Question Two (Government actions that reduce market power) A monopoly drug company produces a lifesaving medicine at a constant cost of $10 per dose. The demand for this medicine is perfectly inelastic at prices less than or equal to the $100 (per day) income of the 100 patients who need to take this drug daily. At a higher price, consumers buy nothing. Show the equilibrium price and quantity and the consumer and producer surplus in a graph. Now the government imposes a price ceiling of $30. Show how the equilibrium, consumer surplus, and producer surplus change. What is the deadweight loss, if any, from this price control?

Question Two (Government actions that reduce market power) A monopoly drug company produces a lifesaving medicine at a constant cost of $10 per dose. The demand for this medicine is perfectly inelastic at prices less than or equal to the $100 (per day) income of the 100 patients who need to take this drug daily. At a higher price, consumers buy nothing. Show the equilibrium price and quantity and the consumer and producer surplus in a graph. Now the government imposes a price ceiling of $30. Show how the equilibrium, consumer surplus, and producer surplus change. What is the deadweight loss, if any, from this price control?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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