A pharmaceutical company launches a new drug, with market (inverse) demand: P (Q) = 115 5Q, where P is price of the drug per bottle and Q is the demand for the drug (in thousands of bottles). The company has a monopoly (patent) over this drug, and its marginal cost of production is 15 dollars per bottle.

1)Calculate the equilibrium price and quantity, profit of the firm, con- sumer surplus, and deadweight social loss from monopoly pricing.

2)Suppose the government can buy the patent from the monopolist, and produce the drug using the same production technology. At what price would the monopolist be willing to sell the patent? What price would the government then set to maximize social surplus? What is consumer surplus (assuming that the government gets the money from consumers to buy the patent)?

3)Suppose the government cannot buy the patent, but forbids the com- pany from selling the drug for more than 40 dollars per bottle. Calculate the equilibrium price and quantity, profit of the firm, consumer surplus, and dead- weight social loss in this case.

4)Suppose the R&D cost for this drug is $400,000. Under perfect fore- sight (the company knew what its R&D costs would be beforehand, and that the government would set a price cap of $40 per bottle), would the company have developed the drug? Would consumers be better or worse off in this case?