Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 xed cost (xed cost per kg) Plant and equipment $1.50 Overhead $1.30 The rm currently has an exclusive patent on the drug, which makes it the only producer of the drug in the market. The market demand for the drug is given as follows: 0 (million kg Er year) P l$ Er kg) 10 6 9 7 8 8 7 9 B 10 5 11 4 12 3 13 2 14 a) At the current production level of 5 million kg per year. the rm is charging $11 per kg as shown in the table above. Is the rm maximizing prot? Why or why not? Use the following table to assist with your answer (2 marks) Q P TR MR MC TC Prot b) What price should the rm charge? How much is the annual prot then? (2 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started