Question
A pharmaceutical company called Pfeezar holds a patent on one of its discoveries, the drug Greedior. a)Assuming that the production of Greedior involves constant marginal
A pharmaceutical company called Pfeezar holds a patent on one of its discoveries, the drug Greedior.
a)Assuming that the production of Greedior involves constant marginal cost, draw a diagram to illustrate Pfeezar's profit-maximizing price and quantity. How would you calculate Pfeezar's profits? Assume that Fixed Cost is $40,000.
b)Now suppose that the government imposes a tax on each bottle of Greedior produced. On a newdiagram, illustrate Pfeezar's new price and quantity. How does price, quantity and profit compareto your answer in part (a)? How does the answer relate to the portion of the demand curve onwhich the monopoly operates?c)Instead of the tax per bottle, suppose that the government imposes a tax on Pfeezar of $30,000regardless of how many bottles are produced. How does this tax affect Pfeezar's price, quantity, and profits? Explain your answer.
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