Question: A new drug called ‘LowG’, taken together with any food, reduces the glycemic index (a measure of the impact of the food on blood sugar) by 50%. Annual demand for this new medication can be described by the following table:See the answerSee the answerSee the answer done loadingA new drug called ‘LowG’, taken together with any food, reduces the glycemic index (a measure of the impact of the food on blood sugar) by 50%. Annual demand for this new medication can be described by the following table:
Quantity (millions of milligrams)
Rache, a pharmaceutical company, holds the patent on LowG and therefore is the only legal producer of the drug for the next 15 years. Calculate total revenue (TR) and marginal revenue (MR) for Rache at each price.
Suppose for Rache, production of this drug involves an annual fixed cost of $200,000 and a (constant) marginal cost of $300 per million milligrams of the drug. Find the profit maximizing quantity produced and the price for Rache. Show how you calculated this equilibrium and demonstrate it graphically.
Suppose that the cost of seeking a patent is equal to $0.5 million, and that a patent lasts for 15 years. Is it worthwhile for Rache to seek a patent to produce this medication, if it knows its costs and the demand information (as provided above) beforehand? Assume constant macroeconomic conditions for the next 15 years for simplicity. Explain your answer.