A pharmaceutical firm named NovoFarm is introducing a novel long-term weight management drug, Ozemgovy, to the market in the Federated Republic of Brobdingnag. The country has a strong pharmaceutical regulatory agency, the Federal Drug Administration. NovoFarm's marginal cost of producing Ozemgovy is $2 per dose. Having already spent $8 million developing Ozemgovy, NovoFarm is now prepared to bring Ozemgovy to the market. However, the patent on Ozemgovy will expire next week unless NovoFarm pays $2 million to renew the patent for one year. If the patent expires, the market will become perfectly competitive, with many other firms sharing the same per-unit cost for the drug as NovoFarm. The per-year demand for Ozemgovy in Brobdingnag is = 800 20, where is measured in thousands of doses, and is in dollars per dose.

(a) Suppose that NovoFarm has decided to renew its patent. As a monopolist, what price should NovoFarm set for Ozemgovy? What quantity should be produced? What would consumer surplus be? (b) Suppose that the FDA can influence the prices of drug in Brobdingnag. If it sets a price ceiling (i.e., a maximum price that is allowed to be charged) of $25 for Ozemgovy, what quantity would be produced? What would consumer surplus be? (c) If the FDA commits to a price ceiling of $5 for the next year, should NovoFarm renew its patent? Explain your answer. You may assume that no further renewals are possible after this yearthe market will become perfectly competitive one year from now no matter what. (d) Suppose that the FDA's goal is to maximize total economic surplus in Brobdingnag. What price ceiling (if any) should the FDA impose? Explain.