Concept of monopoly and profit maximization

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Reference no: EM1311255

Assume the graph below represents the market demand for a patented prescription drug together with the marginal cost and average cost functions for producing the drug. (note: to simplify the problem, I have assumed that MC is constant @ $20 for all Q over 4 million, and that AFC is reduced essentially to 0 when Q reaches 5 million, Thus, the diagram assumes ATC = AVC= MC = $20 for all Q over 5 million)

A) Draw the marginal revenue function for this firm.

B) What is the profit-maximizing price for this firm?

C) On the graph show the area, this represents the net loss to society resulting from the monopoly power conferred by the patent.

D) What do you predict will happen to the structure of competition and to the price in this market when the patent expires? (Hint: use the concept of "Minimum efficient scale" of production in your answer.)

Reference no: EM1311255

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