Consider the pharmaceutical company Mylan that produces epinephrine injection devices called EpiPens. In the presence of other firms producing substitutes for this good, the price of EpiPens is $150. Now suppose that competitors to Mylan no longer produce epinephrine injection devices, so Mylan now has pricing power in this market. As the economist on staff at Mylan, you are charged with the task of figuring out what your company's new pricing strategy should be. The following graph shows the marginal cost (MC), which is assumed to be constant, and the average total cost (ATC) of Mylan. The graph also shows he demand curve (D) for EpiPens and the marginal revenue curve (MR) once the firm has market power. On the graph, use the grey point (star symbol) to indicate the quantity of EpiPens demanded if Mylan continues to charge $150. Dashed drop lines will automatically extend to both axes. PRICE (Dolars per EpiPen) 1000 900 800 700 600 500 400 300 200 100 0 0 1 2 3 MR 5 6 7 QUANTITY (Thousands of EpiPens) ATC -мс D Mylan continues to charge $150 per EpiPen, Mylan will earn 10 at $150 Profit Max ATC at Profit Max economic profit. True or False: Given the demand curve for EpiPens, you should tell Mylan's CEO that total revenue will increase if she raises the price of EpiPens because the demand curve in this region is relatively elastic.
Consider the pharmaceutical company Mylan that produces epinephrine injection devices called EpiPens. In the presence of other firms producing substitutes for this good, the price of EpiPens is $150. Now suppose that competitors to Mylan no longer produce epinephrine injection devices, so Mylan now has pricing power in this market. As the economist on staff at Mylan, you are charged with the task of figuring out what your company's new pricing strategy should be. The following graph shows the marginal cost (MC), which is assumed to be constant, and the average total cost (ATC) of Mylan. The graph also shows he demand curve (D) for EpiPens and the marginal revenue curve (MR) once the firm has market power. On the graph, use the grey point (star symbol) to indicate the quantity of EpiPens demanded if Mylan continues to charge $150. Dashed drop lines will automatically extend to both axes. PRICE (Dolars per EpiPen) 1000 900 800 700 600 500 400 300 200 100 0 0 1 2 3 MR 5 6 7 QUANTITY (Thousands of EpiPens) ATC -мс D Mylan continues to charge $150 per EpiPen, Mylan will earn 10 at $150 Profit Max ATC at Profit Max economic profit. True or False: Given the demand curve for EpiPens, you should tell Mylan's CEO that total revenue will increase if she raises the price of EpiPens because the demand curve in this region is relatively elastic.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the pharmaceutical company Mylan that produces epinephrine injection devices called EpiPens. In the presence of other firms producing
substitutes for this good, the price of EpiPens is $150.
Now suppose that competitors to Mylan no longer produce epinephrine injection devices, so Mylan now has pricing power in this market. As the
economist on staff at Mylan, you are charged with the task of figuring out what your company's new pricing strategy should be.
The following graph shows the marginal cost (MC), which is assumed to be constant, and the average total cost (ATC) of Mylan. The graph also shows
the demand curve (D) for EpiPens and the marginal revenue curve (MR) once the firm has market power.
On the graph, use the grey point (star symbol) to indicate the quantity of EpiPens demanded if Mylan continues to charge $150. Dashed drop lines will
automatically extend to both axes.
PRICE (Dolars per EpiPen)
1000
800
700
600
500
400
300
200
100
0
0
+
1
MR
2
3 4 5 6 7 8
QUANTITY (Thousands of EpiPens)
O True
O False
ATC
-мс
D
If Mylan continues to charge $150 per EpiPen, Mylan will earn
10
at $150
+
Profit Max
ATC at Profit Max
Profit
economic profit.
True or False: Given the demand curve for EpiPens, you should tell Mylan's CEO that total revenue will increase if she raises the price of EpiPens
because the demand curve in this region is relatively elastic.
On the previous graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity. Dashed drop lines will automatically
extend to both axes.
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