Facts in the Case

Company Alpha is the industry leader in the HIV drug industry. They have invested $150 million in research to produce the drug. This investment is a fixed cost. There are a few other smaller companies in the market. The company market share is given in the Excel data sheet.

The government has put a price ceiling on retail price $1.20 per capsule. Company Alpha sell the drug at a wholesale price at $0.80 per capsule. The variable cost per capsule is $0.40. HIV patients are required to take 5 capsules per day. It is estimated that only 75% of the patients take their medicine regularly. Companies use this usage rate to calculate their revenue and cost estimates.

About 70% of the HIV patients depend on the government to pay for their drugs through Medicare and other subsidy programs. In a way, the government (in fact taxpayers) is literally funding the HIV drug industry.

Data given for Calculation

Deaths from HIV/AIDS (Number)

New Infections of HIV/AIDS (new cases of HIV infection)

Number of people living with HIV (includes new patients)

Retail Price/Capsule

Wholesale Price/Capsule

Variable Cost/Capsule

Market share (%) of Alpha

Calculate the followings for the company

Yearly total revenue, cost, and profit

(Caveat: Actual quantity sold is influenced by dosage and usage rate)

Revenue = Price * Quantity

Cost = Variable Cost * Quantity

Profit = Revenue - Cost

Breakeven quantity = (Fixed Cost / Price Variable Cost)