What is the consumer surplus

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Reference no: EM133750107

Problem

1) In a sentence or two, explain how patents lead to monopoly power.

2) Consider a firm who has just patented a new drug. They face a demand for this drug: Qd = 400-2p and have a constant marginal cost of $50 per unit they produce. Given this information, their marginal revenue will be MR(Q) = 200 - Q. What is the profit maximizing price and quantity for this new drug?

3) Under the optimal quantity you found in part 2, what is the consumer surplus? What is the producer surplus? What is total surplus?

4) If the patent expires and many firms start producing generic versions of the drug (using the original firm's same production technology), what will be the new equilibrium price and quantity?

5) Under the competitive market equilibrium you found in part 4, what is the consumer surplus? What is the producer surplus?

Reference no: EM133750107

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