What is the monopolist profit-maximizing price

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Reference no: EM133363846

Question: Consider a pharmaceutical company considering research and development of a new drug. They estimate that demand for this new, innovative product (the only of its kind) is given by p = 200 -q, and the firm knows that once the drug is developed it can produce as much as it would like at a constant marginal cost of $10 (this implies a cost function of c(q) = 10q).

(a) What is the monopolist's profit-maximizing price and quantity produced, pm and qm if they develop the drug? Be sure to include a well-labeled diagram!

(b) If the firm expects that the R&D will cost $10,000, should the firm pursue this product innovation?

(d) What is the socially optimal quantity of output, q*? (e) What is the value of the innovation to society if it was competitively/efficiently supplied?

(f) Calculate the deadweight welfare loss we should expect if the firm produces the new drug as a monopoly.

Reference no: EM133363846

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