1.6 Consider only the US market from Exercise 3. Graph solutions to parts 6a and 6b using the demand, average cost, and marginal cost curves. Also try to develop the answers algebraically.

a Price regulation is proposed. Find the regulated price that enables the firm to cover all its costs. Caution! There are two mathematical solutions. Which one will regulators prefer?

b Find also the economically efficient price (i.e., one that is consistent with marginal cost pricing). What subsidy per prescription is required to enable the firm to cover all its costs?