6.You are the manager of a small pharmaceutical company, Advent Pharmaceuticals, Inc. that received a patent on a new drug four years ago. Despite strong sales ($200 million last year) and a low marginal cost of producing the product ($0.50 per pill), your company has yet to show profit from selling the drug. This is, in part, due to the high upfront costs of about $2 billion of developing and obtaining FDA approval (R&D costs). As an economist working for Advent, you have estimated that, at current price of $2.0 per pill, the price elasticity of demand for the drug is -2.0.

a.Does the company have a monopoly power on this particular drug? How can we measure the degree of monopoly power? Explain.

Elasticity - -2.0

Marginal Cost - $.50

Current Price - $2.00

MR = $2.00(1+-2)/-2 = $1

b. Based on this information, what can you do to boost profits? Explain.