Q1: After spending 10 years and $1.5 billion, you have finally gotten FDA approval to sell your new patented drug, which reduces the aches and pains associated with doing Managerial Economics homework. You will market this drug under the brand name EasyGoing. Market research indicates that the price elasticity of demand for the drug is -1.25. You estimate the marginal cost of manufacturing to be $1.

a) What is the profit-maximizing price per dose? Make sure you derive analytically all the results you want to use to find the optimal price. If you just apply a formula (without deriving mathematically the formula) you get only 10% of the points.

b) Would you expect the elasticity of demand you face for this drug to rise or fall when your patent expires? Explain.