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A pharmaceutical company is a monopoly in Alzheimer's disease drugs and faces the following inverse demand curve:
, where α is the level of advertising. Its marginal production costs are constant at m.
(a) Show in a diagram what happens to its price, revenues and production costs if it raises advertising from zero to one unit.
(b) Use the diagram in (a) to discuss under what condition is advertising by this monopoly profitable?
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Print out your results and bring them with you to the midterm as there will be additional questions on the midterm related to this analysis. You must hand in your take-home by the
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