A product was developed from a university research spinoff1 and the technology was then licensed to a big pharma company for production. Industry reports estimate that sales of this product in 2020 totaled 20 million doses at a price of $12 each. Now assume that since the product was developed at a university - it has the right to license one more vendor - your firm. They offer the license to your firm for $2 per dose. Your firm investigations suggests that you could produce for $5/dose. The question is whether your costs are low enough to withstand the competition that may arise with the pharma company. You are worried that the royalty to the University may give you higher costs than the pharma company, whose cost structure is kept closely guarded. We know very little other than the elasticity which is available from market research. The price elasticity of demand for this medicine is between -2 and -3

Question: Suppose competition between your firm and the pharma company drives the price down to the marginal cost of the high-cost producer. Would you make money at this price? How would you respond to the University?