1. Estimates of the marginal cost of Daraprim are $100 for a 100 pill bottle. If Turing Pharmaceuticals charged $75,000 per bottle, what is the elasticity of demand that Turing believed it faced?
2. What is the associated Lerner Index for Daraprim?
3. Assume that Turing Pharmaceuticals based its pricing decision on an Inverse Demand curve estimate of P= - 14.98Q + 149,900. Here P is the price per 100 pill bottle and Q is the quantity of such bottles. Verify that P=$75,000 is the profit maximizing price.
4. Draw and label a graph of the deadweight loss associated with the monopoly price charged for Daraprim by Turing Pharmaceuticals. What is the value of the deadweight loss? Assume that marginal cost is constant at $100 per 100 pill bottle.
5. Suppose that the FDA does not regulate Imprimisand allows its drug to immediately compete with Daraprim. Under Cournot competition and the assumption that the competitor faces the same marginal cost of $100 / bottle, what is the profit maximizing market price of the drug?
6. Should Martin Shkreli lower the price for Daraprim?