You are consulting for a pharmaceutical company, ABC, who is the sole producer

of a particular drug. The firm's cost structure is:

Total Costs, TC = 1,000Q

That is, assume development costs are all sunk, so that fixed costs are zero, and

Marginal Costs, MC = 1,000.

Market research reveals a demand given by:

Q = 2,250 - 0.25P, equivalently: P = 9000 - 4Q,

So that MR = 9,000 - 8Q.

a. Calculate the profit-maximizing price, and the resulting profit?

b. In China, the company faces competition from other generics. Assume that other producers have the same cost structure as ABC, and you can analyze this competitive market using the supply and demand framework.

i. What will be the equilibrium price and quantity in the market?

ii. What is ABC's profit in this market?