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Calculate the lerner index

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Question - Recently, Pfizer and Allergan - the makers of Viagra and Botox, respectively - initiated a $160 billion merger. Pharmaceutical companies tend to spend a greater percentage of sales on R&D activities than other industries. The government encourages these R&D activities by granting companies patents for drugs approved by the Food and Drug Administration. For instance, Allergan spent large sums of money developing its popular wrinkle-removing neurotoxin, Botox, which is currently protected under a patent. Botox sells for about $15 per vial.

Calculate the Lerner index if the marginal cost of producing Botox is $1.50 per vial.

Does the Lerner index make sense in this situation?

A. No, it is not possible to have a Lerner index this high.

B. No, a Lerner index this high is not consistent with profit maximization.

C. Yes, Allergan has a patent-protected monopoly.

Reference no: EM132763719

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