Question 1

Pharmtastic is a drug manufacturer that recently gained FDA approval to sell its new product Flowkurr, a drug which improves blood flow in patients with poor blood circulation. Assume Pharmtastic's patent on Flowkurr has 10 years remaining, giving Pharmtastic exclusive sales rights for the next decade. Consider each of the three possible scenarios below:

Scenario 1: There are several drugs similar to Flowkurr already widely available in the US to treat this condition.

Scenario 2: There were several drugs similar to Flowkurr widely available in the US to treat this condition, but Pharmtastic recently purchased the rights to produce all of the drugs competing with Flowkurr, and halted the production of these other drugs.

Scenario 3: There are several drugs similar to Flowkurr already widely available in the US to treat this condition. However, a new study shows that for roughly half of patients with this condition, Flowkurr is much more effective than all of its competitors.

a)Under Scenario 1, will Pharmtastic likely be able to exert a high degree of market power in the market for Flowkurr? Why or why not?

b)Under Scenario 2, will Pharmtastic likely be able to exert a high degree of market power in the market for Flowkurr? Why or why not?

c)Draw one graph containing two demand curves - one illustrating the demand for Flowkurr under Scenario 1 and one illustrating the demand for Flowkurr under Scenario 2. Label the demand curves "1" and "2," respectively.

d)In words, briefly explain the reason for any difference in the slope and/or position of demand curve "2" relative to demand curve "1."

e)Draw one graph containing two demand curves - one illustrating the demand for Flowkurr under Scenario 1 and one illustrating the demand for Flowkurr under Scenario 3. Label the demand curves "1" and "3," respectively

f)In words, briefly explain the reason for any difference in the slope and/or position of demand curve "3" relative to demand curve "1."