Homework Assignment No. 2 Due Date: April 24, 2021 1. The drug manufacturer Medica has obtained a patent for a new superior drug for headaches and migraines. Let the inverse market demand function for the patented drug Fixheadache be given by: P = 48 - 4Q where P is the price of a pack of Fixheadache and Q is the quantity of packs demanded at each price. Further assume that the marginal cost of producing the drug is given by MC = 4Q. a) Draw a graph clearly showing the (inverse) demand function and marginal revenue function for Fixheadache; the consumer and producer surplus under perfect competition and monopoly; and the resulting deadweight loss, if any. b) What are the profit maximizing price and quantity? c) How do they differ from the equilibrium price and quantity that would obtain under perfect competition? d) What is the consumer surplus, producer surplus and total surplus under perfect competition? e) How about monoploy? Is there any deadweight loss? How much is it? Explain what is driving the deadweight loss, if any? 2. True or false and explain: a) A monopolist chooses the profit maximizing quantity to be on the inelastic portion of the demand curve. b) A firm in long-run competitive equilibrium faces perfectly inelastic demand. c) For a competitive firm economic profit in the in long run is zero. d) For a firm to have market power, the demand curve it faces must be downward sloping. 3. Explain the market failure of single-price monopoly. How does perfect price discrimination by the monopolist may "solve" the problem?