Your pharmaceutical company has developed a therapy that can cure peanut allergies. The inverse demand function...
Your pharmaceutical company has developed a therapy that can cure peanut allergies. The inverse demand function for this therapy is given as:
P = $150,000 – 62.5Qd, where Qd is the annual quantity demanded.
While development costs were substantial, your marginal costs for a full treatment are ‘just’ $800 per treatment.
- If you set a single price to maximize profits, what quantity will you supply each year?
(Guidance: The marginal revenue (MR) function has the same y-axis intercept as the inverse demand function, but twice the slope. Set MR equal to MC and solve for Q.)
- What is the price for treatment? (Hint, plug your quantity from 11 into the inverse demand function.)
- If the treatment was priced at the marginal cost to your company, how many treatments would be provided per year?
- What is the deadweight loss due to monopoly power in this market? (This will be covered in one of the lessons.)
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Your pharmaceutical
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