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Maximise total surplus of producers and consumers

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Shirley has just invented a new pain-relief drug and has obtained a patent, so no one can sell theproduct without her permission. Shirley is willing to sell the rights to be the monopoly provider of thenew product in the Australian market. (That is, the firm that buys the rights to use the patent becomes asingle-price monopolist selling drug in the Australian market.) Each unit of the drug costs $2 to make(that is MC = $2 per unit) and the demand curve in Australia for the product is q = 18 - P. What is themaximum that the government would be willing to pay for the patent? (Hint: the government would liketo maximise total surplus of producers and consumers in the market, but is not willing to pay more thanthe total surplus generated by the new drug.)

Reference no: EM131090654

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