lmagjneyouarethe CED ofBayerand yeur REED team hasjust developed a blockbuster drug to
treat high blood pressure. You sucmssfully went through clinical trials and you have FDA apprm'al
soyouarereadysclliton tbemarket. The regulatorhasgivenyeuapatent lengthofflflyearsand
new you are trying to figure out the optimal price for the drug. Your marketing department has
crunched a few numbers and figured the following demand curve per year: Q = 1,3301flm—21flflflvF wherePistheprioeper drugindollarsa.nJ|:lQistheiquautit‘fj.r den1andedintbeyearat tbatprice.
The research group also tells you that they,r spent $2 billion on Desmrch and development. However
their,r can nowproduoethedrugfor$4flflper piece 1.
2. Derive the inverse demand curve [5 points) Derive the annual revue curve in terms of the quantitfi.r of drugs being sold, and quantify,r the
marginal revenue curve which indicates the marginal increase in revenues from a marginal
increase in quantity {5 points} . Derive the profit-maximising price and quantity. 1What is the variable profit per year? {5 points] . [u a diagram with quantity on the horizontal axis and price and me on the vertirnl aids1 draw themrersedemandcmm.tbemarginalmvenuecme,andthemarginalcostcme Derive
the optimal price graphically. [5 points} . Is the marginal revenue steeper or flatter than the inverse demand curve? If so why? {5 points] . «Quantiiivr the average cost curve {5 points} . Suppose that generic companies enter the market once the patent elapse'a:1 which leads to perfect competition. Suppose the generic companies have the same marginal ocsts. 1|What
1will be the equilibrium price under perfect competition? {5 points]I . Is Bayer able to recover the fixed costs of RSeD through variable profits? Assume that there is no profit discounting in future years. so profits next year count equally as profits this year.

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Status NEW Posted 05 Jun 2017 06:06 AM My Price 10.00

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