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ktpizzle1993 ktpizzle1993
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2 years ago

The diagram below shows the demand curve and marginal cost and marginal revenue curves for a new heart medication for which the pharmaceutical firm holds a 20-year patent on its production and sales. This protection gives the firm monopoly power for the 20 years of the patent.

Short description: A graph plots output against price. Long description: The horizontal axis representing output lists the following values from left to right: Q subscript 0 and Q subscript 1. The vertical axis representing the price lists the following values from top to bottom: P subscript 0, P subscript 1, and P subscript 2. The graph shows two lines and a curve. A dashed decreasing line represents MR. A decreasing line represents D. A concave up increasing curve represents MC. MR and MC intersect at (Q subscript 0, P subscript 0). MC and D intersect at (Q subscript 1, P subscript 1). A point is marked on D at (Q subscript 0, P subscript 0). Vertical and horizontal dotted lines are extended from the points to meet the axes. The regions to the left of MR, above P subscript 0, above P subscript 1, above P subscript 2, and below P subscript 2 are marked D, C, B, and A. The regions to the right of MR, above P subscript 0, above P subscript 1, above P subscript 2, and to the left of Q subscript 0 are marked E, F, and G. The regions to the left of Q subscript 0, within P subscript 0 and P subscript 1, and below P subscript 1 are marked H and I. The region to the right of Q subscript 0, below MR is marked K. The region to the right of MR, below MC, and to the left of Q subscript 1 is marked J.
FIGURE 10-9

Refer to Figure 10-9. Suppose this pharmaceutical firm is charging a single price for its drug and is maximizing its profits. If it then begins to perfectly price discriminate among its buyers and maximizes its profits by doing so, it will



▸ reduce its producer surplus by areas C + F + H.

▸ generate an increase in producer surplus equal to areas D + E + H + I.

▸ cause a loss of economic surplus to society as a whole.

▸ decrease its total output.

▸ no longer be equating MR and MC.
Textbook 
Microeconomics

Microeconomics


Edition: 17th
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Hope89Hope89
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ktpizzle1993 Author
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2 years ago
Smart ... Thanks!
kaytee23
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Yesterday
Correct Slight Smile TY
rene_ram97
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2 hours ago
Thanks for your help!!
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