Use monopoly analysis to depict a drug company's effort on consumers and producer surplus

Marketing Jan 11, 2021

Use monopoly analysis to depict a drug company's effort on consumers and producer surplus. Do the company's actions create a dead weight surplus?

Expert Solution

When looking at drug companies' activities, they are consistent with a monopolistic activity. For example, over the last 10 years, the price of insulin has skyrocketed, doubling in that timeframe. This is monopolistic because individuals need insulin in order to survive, and thus individuals will pay it.

Yes, this has created a dead weight surplus, because individuals are dedicating more of their income to insulin, rather than spending it on other activities.

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