hi i do not knw the answers for c and d. i have attempted a and b and would like to clarify if its correct?
my answer:
a) profit earned = 2 x 75 = 150
b) set price at ATC because the firm still can operate even though it is earning a normal profit. unlike in P=MC, the firm suffer losses. so, seting price at a fair return price seems more feasible...
Question 2 (15 pts.) TJ Med is a pharmaceutical company that has been awarded a patent to produce Avatisone, an anti-flammatory drug, which it sells in packs. TJ Med faces the market demand curve shown below. The firm has a constant marginal cost of $2 per pack and fixed cost of $50 million. (per pack) 10 cn ATC -MC MR 50 75 100 150 200 Quantity of packs (a) What is the price that TJ Med would charge per pack if it was not regulated by the government (ie., it was free to maximize profit as it wished)? How much would its profit be? (There is no need to show your calculations. Just work on your draft paper and write your final answer.) (3 pts.) (b) Now suppose that the government decides to regulate TJ Med's production and sale of Avatisone by setting the price that TJ Med should charge. The government can either implement the efficient (socially optimal) price or the fair-return price. Which regulation would the government prefer? Which one would TJ Med prefer? Explain your answer in no more than 10 sentences. (There's no need to present a graph or a table. Just work on your draft paper and describe your conclusions in words.) (5 pts.) (c) Instead of price regulation by the government, can you propose a market-based method (one that does not require any government intervention) to make TJ Med more efficient? Describe your proposal as well as you can by explaining how it reduces deadweight loss and how it affects consumer and producer surplus. (There's no need to present a graph or a table. Just work on your draft paper and describe your conclusions in words.) (4 pts.) Page 4 of 5(d) Return to the case where TJ Med is unregulated. Suppose that the price is set by a manager who gets 2% of revenue from the sale of Avatisone as a bonus. What price would the manager choose? Does this price make TJ Med more efficient or less efficient? Explain your answer in no more than 5 sentences. (There's no need to present a graph or a table. Just work on your draft paper and describe your conclusions in words.) (3 pts.) Question 3 (5 pts.) What is the difference between an equilibrium and a social optimum? Answer in no more than 10 sentences
