Homework answers / question archive / (30) A pharmaceutical company has estimated the demand function for a drug for which it has a patent to be:                                 If M is 50,000, what is the demand function? If M is 50,000, what is the inverse demand function? If M is 50,000, what is MR? If M is 50,000 and MC = 50, what is the profit maximizing level of output and price?   When the patent expires, it is expected that a large number of other firms will enter the market by offering generic alternatives

(30) A pharmaceutical company has estimated the demand function for a drug for which it has a patent to be:                                 If M is 50,000, what is the demand function? If M is 50,000, what is the inverse demand function? If M is 50,000, what is MR? If M is 50,000 and MC = 50, what is the profit maximizing level of output and price?   When the patent expires, it is expected that a large number of other firms will enter the market by offering generic alternatives

Economics

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1. (30) A pharmaceutical company has estimated the demand function for a drug for which it has a patent to be:
   
                                
    
   1. If M is 50,000, what is the demand function?
   2. If M is 50,000, what is the inverse demand function?
   3. If M is 50,000, what is MR?
   4. If M is 50,000 and MC = 50, what is the profit maximizing level of output and price?
       

When the patent expires, it is expected that a large number of other firms will enter the market by offering generic alternatives. This transforms the market from a monopoly to perfect competition.
 

1. 5. If M is 50,000 and MC = 50, what is the profit maximizing level of output and price?
   6. In the short run, are consumers who take this drug better or worse off after the patent expires?

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2. (20 points) Product standards: Firms often find it advantageous if an industry adopts a single standard, but often will prefer that an industry adopt one standard vs. another standard (e.g., the firm may own a patent that applies to one standard but not the other). Suppose there are two firms and two standards. Suppose Firm 1 most prefers that both firms adopt Standard M, second most prefers that both firms adopt Standard W, third prefers that it adopt Standard M while the other firm adopts Standard W and least prefers that it adopt Standard W while the other firm adopts Standard M  Firm 2 most prefers that Standard W be adopted by both firms, second most prefers that both firms adopt Standard M, third prefers that it adopt W while the other firm adopts M and least prefers that it adopt M while the other adopts W.  The normal form of the game is given below.

 

		Firm 1
		Standard W		Standard M
Firm 2	Standard W	400	300	200	200
	Standard M	100	100	300	400

 

1. 1. Explain why there are two pure Nash equilibriums.

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3. (15 points) Discuss the market structure faced by NMSU Bookstore (which is operated by Barnes and Noble). Based on the hypothesized market structure, what management action do you recommend to the Bookstore? Be sure that the management actions are tailored to the market structure and not generic actions applicable regardless of the market structure.

 

 

4. (20 points) Suppose an industry consists of two identical firms (that is, the industry is a duopoly). The two firms take the others production (Q) as given.
   1. Suppose you know the following, find the best response function:
      
      MR₁ = 10000 - Q₁ - .5Q₂, MC₁ = 1000
      
      MR₂ = 10000 - .5Q₁ - Q₂, MC₂ = 1000
       

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5. (15 points) You are in a meeting about the price strategy to adopt for a product your firm is about to introduce into a new market. Jack says, “We should use price skimming.” Jane says, “We should use penetration pricing.”
   1. What assumption is Jack making about the dynamics of price elasticity?
   2. What assumption is Jane making about the dynamics of price elasticity?

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