2. 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). (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.

2. 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). (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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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