MONASH BUSINESS SCHOOL Part 2 (4 marks in total) The following table shows production costs of an antibiotic drug for the current production level of 5 million kg per year (assume a constant average and marginal cost of production). Average variable cost (variable cost per kg) Raw materials $1.50 Utilities $0.40 Labour $1.10 Average fixed cost (fixed cost per kg) Plant and equipment $1.50 Overhead $1.30 The firm currently has an exclusive patent on the drug, which makes it the only producer of the drug in the market. The market demand for the drug is given as follows: Q (million kg per year) P ($ per kg) 10 6 8 10 NW AUTO a) At the current production level of 5 million kg per year, the firm is charging $11 per kg as shown in the table above. Is the firm maximizing profit? Why or why not? Use the following table to assist with your answer (2 marks) Q P TR MR MC TC Profit b) What price should the firm charge? How much is the annual profit then? (2 marks) 4 ) Assignment 2 ECF 1 100 Microeconomics 91 2022 2027 Monash Business School