Hepatitis C is a potentially deadly disease of the liver. Sovaldi is a recently-approved drug that, when used in combination with other drugs, can cure Hepatitis C in as many as 93-95% of the cases. The company that markets this drug, Gilead Science, sells it for $1,000 a pill (for an 12 week, 84 pill course of treatment) in the US, and for $4 a pill in India (http://www.chicagotribune.com/business/ct-drug-price- sofosbuvir-sovaldi-india-us-20160104-story.html ). The company's stock price soared on approval of the drug, from $20/share to $112/share. (It now sells at about $80.)

Think about the elasticity of demand and supply for life-saving drugs and where the MC of producing more is very low. Show the socially optimal price for these drugs. Where will a monopolistic drug company set prices?

Would you recommend that the government regulate the price of Sovaldi? Why? Why not?