Suppose a drug company has a patent on a cancer drug that allows it to enjoy monopolistic rents for the life of the patent. The patent is set to expire in one year. At that point all drug companies will have access to the patent and be able to produce generic versions of the cancer drug, transforming the market for this drug in a perfectly competitive market. Suppose the market demand for the cancer drug before and after the patent expires is unchanged and given by p = 120 - 0.3Q. Suppose that all firms (the monopolist as well as the generic drug firms) face the same production cost C(Q) = 100 + 0.3Q + 0.2Q2. Question: Calculate the gain in total surplus that results when the market for the cancer drug switches from a monopolistic market to a perfectly competitive market.
Suppose a drug company has a patent on a cancer drug that allows it to enjoy monopolistic rents for the life of the patent. The patent is set to expire in one year. At that point all drug companies will have access to the patent and be able to produce generic versions of the cancer drug, transforming the market for this drug in a perfectly competitive market. Suppose the market demand for the cancer drug before and after the patent expires is unchanged and given by p = 120 - 0.3Q. Suppose that all firms (the monopolist as well as the generic drug firms) face the same production cost C(Q) = 100 + 0.3Q + 0.2Q2. Question: Calculate the gain in total surplus that results when the market for the cancer drug switches from a monopolistic market to a perfectly competitive market.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.2P
Related questions
Question
![Suppose a drug company has a patent on a
cancer drug that allows it to enjoy
monopolistic rents for the life of the patent.
The patent is set to expire in one year. At
that point all drug companies will have
access to the patent and be able to produce
generic versions of the cancer drug,
transforming the market for this drug in a
perfectly competitive market. Suppose the
market demand for the cancer drug before
and after the patent expires is unchanged
and given by p = 120 - 0.3Q. Suppose that
all firms (the monopolist as well as the
generic drug firms) face the same
production cost C(Q) = 100 + 0.3Q + 0.2Q2.
Question: Calculate the gain in total surplus
that results when the market for the cancer
drug switches from a monopolistic market
to a perfectly competitive market.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F081d048d-cc6b-474c-a425-dba71ab92404%2F2d9ce67a-70cb-44ef-a17a-9ac4f97b3e01%2Fmnvepfo_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose a drug company has a patent on a
cancer drug that allows it to enjoy
monopolistic rents for the life of the patent.
The patent is set to expire in one year. At
that point all drug companies will have
access to the patent and be able to produce
generic versions of the cancer drug,
transforming the market for this drug in a
perfectly competitive market. Suppose the
market demand for the cancer drug before
and after the patent expires is unchanged
and given by p = 120 - 0.3Q. Suppose that
all firms (the monopolist as well as the
generic drug firms) face the same
production cost C(Q) = 100 + 0.3Q + 0.2Q2.
Question: Calculate the gain in total surplus
that results when the market for the cancer
drug switches from a monopolistic market
to a perfectly competitive market.
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