Draw a correctly labeled graph for mediclab

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Reference no: EM132922939

1. MedicLab has a drug patent on an effective migraine headache medicine. MedicLab is currently earning an economic profit.
(a) Draw a correctly labeled graph for MedicLab. In your graph, identify the following.
a. MedicLab's profit-maximizing price and quantity, labeled and.
b. MedicLab's area of economic profit (area should be shaded in).

(b) The government is considering new anti-trust legislation and may regulate MedicLab's migraine medicine even though its patent is still valid. Show, on a graph, what price the government may require MedicLab to sell its migraine medication for if it wants MedicLab to produce at the following.
a. The socially optimal level of output, labeled as or.
b. The fair-return price, labeled as.

(c) If the government decides to regulate MedicLab as in part (b) above, how will this affect the welfare of the consumers who purchase this migraine medication? Use a new graph to identify the consumer surplus for consumers in this market before and after regulation. Specificially, show on your graph and explain the differences in consumer surplus in each of the following situations.

a. Consumer surplus without government regulation.
b. Consumer surplus with regulation at the socially optimal output level.
c. Consumer surplus with regulation at the fair-return price.

(d) Assume that the government decides against regulating MedicLab's migraine medicine, but that the patent for the drug expires. Explain what happens to the following.
a. MedicLab's profit-maximizing price and quantity.
b. MedicLab's profit.

Reference no: EM132922939

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