Recently, Pfizer and Allergan - the makers of Viagra and Botox, respectively - initiated a $160 billion merger.Pharmaceutical companies tend to spend a greater percentage of sales on R&D activities than other industries.The government encourages these R&D activities by granting companies patents for drugs approved by the Food and Drug Administration.For instance, Allergan spent large sums of money developing its popular wrinkle-removing neurotoxin, Botox, which is currently protected under a patent.Botox sells for about $15 per vial.

Calculate the Lerner index if the marginal cost of producing Botox is $1.50 per vial.

_________?

Does the Lerner index make sense in this situation?

multiple choice

a) Yes, Allergan has a patent-protected monopoly.

b) No, a Lerner index this high is not consistent with profit maximization.

c) No, it is not possible to have a Lerner index this high.