Suppose a pharmaceutical firm just invents a new drug to treat mad cow disease and this is the only effective drug available in the market. The demand and total cost functions of the firm are:Demand: P = 36 – Q Total cost: C = 24 + 2Q2where P is the price of the drug,Q is the quantity of the drug and C is the total cost of the firm. Draw a diagram to show the price, output and profit of the firm. Label your diagram clearly. Suppose the pharmaceutical firm needs to spend a lump sum of $M to apply for the patent of the drug. Explain whether this cost of patent affects the price, output and profit of the firm.

The total revenue , marginal revenue, total cost marginal cost and average total cost is shown in…

Answered: Suppose a pharmaceutical firm just…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose a pharmaceutical firm just invents a new drug to treat mad cow disease and this is the only effective drug available in the market. The demand and total cost functions of the firm are:

Demand: P = 36 – Q Total cost: C = 24 + 2Q2

where P is the price of the drug,
Q is the quantity of the drug and C is the total cost of the firm.
1. Draw a diagram to show the price, output and profit of the firm. Label your diagram clearly.
2. Suppose the pharmaceutical firm needs to spend a lump sum of $M to apply for the patent of the drug. Explain whether this cost of patent affects the price, output and profit of the firm.

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