Question
The Happy Daze drug company is considering developing a new tranquilizer: a compound known as the DRZ4321G. It is more commonly know around headquarters as
The Happy Daze drug company is considering developing a new tranquilizer: a compound known as the DRZ4321G. It is more commonly know around headquarters as Happy Hippo. If the company can develop the drug and get a patent (a monopoly on the drug for a fixed period), it must recover $50,000,000 annually to cover its research and development costs. Look at the spreadsheet estimating the annual costs and revenues for the production and sale of DRZ4321G during the patent period, including the R&D costs. Assume that R&D costs are the only fixed costs.
| Doses | Price per Annual Dose | Revenue | Marginal Revenue | Research Costs (millions) | Variable Cost | Average Variable Cost | Total Cost | Marginal Cost | Profit |
| 0 | - | $0 | - | $50,000,000 | $0 | - | $50,000,000 | - | ($50,000,000) |
| 100,000 | $350 | $35,000,000 | $350 | $50,000,000 | $30,000,000 | $300 | $80,000,000 | $300 | ($45,000,000) |
| 200,000 | $325 | $65,000,000 | $300 | $50,000,000 | $45,000,000 | $225 | $95,000,000 | $150 | ($30,000,000) |
| 300,000 | $300 | $90,000,000 | $250 | $50,000,000 | $55,000,000 | $183 | $105,000,000 | $100 | ($15,000,000) |
| 400,000 | $275 | $110,000,000 | $200 | $50,000,000 | $65,000,000 | $163 | $115,000,000 | $100 | ($5,000,000) |
| 500,000 | $250 | $125,000,000 | $150 | $50,000,000 | $73,000,000 | $146 | $123,000,000 | $80 | $2,000,000 |
| 600,000 | $225 | $135,000,000 | $100 | $50,000,000 | $80,000,000 | $133 | $130,000,000 | $70 | $5,000,000 |
| 700,000 | $200 | $140,000,000 | $50 | $50,000,000 | $85,000,000 | $121 | $135,000,000 | $50 | $5,000,000 |
| 950,000 | $175 | $166,250,000 | $105 | $50,000,000 | $120,000,000 | $126 | $170,000,000 | $140 | ($3,750,000) |
| 1,200,000 | $150 | $180,000,000 | $55 | $50,000,000 | $160,000,000 | $133 | $210,000,000 | $160 | ($30,000,000) |
| 1,500,000 | $125 | $187,500,000 | $25 | $50,000,000 | $225,000,000 | $150 | $275,000,000 | $217 | ($87,500,000) |
| 2,000,000 | $100 | $200,000,000 | $25 | $50,000,000 | $310,000,000 | $155 | $360,000,000 | $170 | ($160,000,000) |
| 3,000,000 | $75 | $225,000,000 | $25 | $50,000,000 | $500,000,000 | $167 | $550,000,000 | $190 | ($325,000,000) |
| 8,000,000 | $50 | $400,000,000 | $35 | $50,000,000 | $1,500,000,000 | $188 | $1,550,000,000 | $200 | ($1,150,000,000) |
| 12,000,000 | $25 | $300,000,000 | ($25) | $50,000,000 | $2,500,000,000 | $208 | $2,550,000,000 | $250 | ($2,250,000,000 |
Will Happy Daze decide to develop the drug if it can get a patent? Explain why or why not.
If a patent is available, what will the price and quantity be if the company decides to produce the drug during the life of the patent?
Would your conclusion change if the R&D costs were $75,000,000 annually?
If there is no patent law, do you think the drug will be cheaper? Explain why or why not.
About how much will the drug cost after the patent expires? How many will be sold? Explain your reasoning?
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Introduction To Actuarial Science
Authors: John James Hardy
1st Edition
1332733697, 978-1332733699
