Question

Suppose a pharmaceutical firm is considering whether to invest in a new drug and it estimates...

Suppose a pharmaceutical firm is considering whether to invest in a new drug and it estimates that the annual demand for the drug is given by Q = 1, 000, 000 − 500p. It knows that once the drug is patented, the unit cost of production will be $10.
a. What is the maximum variable profit it expects to make annually? What price will it set and the quantity it will sell annually.
b. If the life of the patent is 10 years, what is the maximum amount the firm will consider investing inclusive of all R&D costs and fixed costs?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose a pharmaceutical firm just invents a new drug to treat mad cow disease and this...
Suppose a pharmaceutical firm just invents a new drug to treat mad cow disease and this is the only effective drug available in the market. The demand and total cost functions of the firm are: Demand: P = 36 – Q Total cost: C = 24 + 2Q2 where P is the price of the drug, Q is the quantity of the drug and C is the total cost of the firm. a. Find the marginal cost and marginal revenue...
1) A firm is considering buying a patent that would give it a monopoly over sale...
1) A firm is considering buying a patent that would give it a monopoly over sale of a new drug. If it buys the patent, the demand curve is it would face for its product is P = 10 – q, and it would have zero marginal costs of production and no other fixed costs. If the firm anticipates setting a single price to all consumers, what is the most that it would be willing to pay for the patent?...
1. A pharmaceutical company currently holds a patent on a cream that removes freckles. They are...
1. A pharmaceutical company currently holds a patent on a cream that removes freckles. They are in the final year of patent protection and have brought down the cost to make a carton of the cream over time to its current C(Q) = 100Q. The inverse-demand for cartons (which contain 10 individual bottles) of this product is P = 1,000 – 10Q. a. What price will the monopoly set, what quantity (in cartons) will be purchased, and how much profit...
Suppose the home firm is considering whether to enter the foreign market. Assume that the home...
Suppose the home firm is considering whether to enter the foreign market. Assume that the home firm has the following costs and demand:Fixed costs = $ 200Marginal cost= $ 10 per unit Local price = $ 20 Local quantity = 20 Export price = $ 15 Export quantity = 10 a. Calculate the firm’s total costs from selling only in the local market. b. What is the firm’s average cost from selling only in the local market? c. Calculate the...
Firm ABC is considering to invest in a project to reduce costs by $70,000 annually. The...
Firm ABC is considering to invest in a project to reduce costs by $70,000 annually. The equipment costs $200,000, had a 4-year life (will be depreciated as a 3-year MACRS asset), requires no additional investment in net working capital, and has a salvage value of $50,000. The firm’s tax rate is 39% and the required return on investments in this risk class is 10%. What is the NPV and IRR of this project? (The MACRS’s first three years’ depreciation rates...
The company estimates that its cost of capital is 15%. It is considering whether to invest...
The company estimates that its cost of capital is 15%. It is considering whether to invest in Shining Zambian, which has the following cash flows and will make the decision on the basis of the Net present value of the project: Estimated Cash Flows of the Project of Shining Zambian Limited Year Cash flows in (K’ Millions) 0 (100,000) 1 50,000 2 30,000 3 70,000 4 20,000   Note: Zambians abroad investments hopes to recoup its investment and payback any amounts...
1. Zypan, an anti-cancer drug, can be produced at a constant marginal cost of $5 per...
1. Zypan, an anti-cancer drug, can be produced at a constant marginal cost of $5 per pill. The R&D fixed costs associated with the production of Zypan are entirely sunk. Zypan is under patent protection. Accordingly, its sole producer is Dastro, the pharmaceutical firm that developed it. Dastro can sell Zypan in two different countries called Alpha and Beta. The demand for Zypan in Alpha is qA = 55 – pA. The demand for Zypan in Beta is qB =...
A firm is considering a new project which would be similar in terms of risk to...
A firm is considering a new project which would be similar in terms of risk to its existing projects. The firm needs a discount rate for evaluation purposes. The firm has enough cash on hand to provide the necessary equity financing for the project. Also, the firm: 1) has 1,000,000 common shares outstanding, current price $11.25 per share, next year's dividend expected to be $1 per share, firm estimates dividends will grow at 5% per year after that, flotation costs...
Suppose an oil company is considering whether to develop production facilities for a newly discovered oil...
Suppose an oil company is considering whether to develop production facilities for a newly discovered oil field on lands owned by a state government. If the firm spends $2 billion in present value in capital costs, it could install facilities capable of producing 80,000 barrels per day. Annual operating costs for the oil field are anticipated to be $30 per barrel produced. The company expects production from the field to start at 80,000 barrels per day but then decline at...
HEALTHY OPTIONS INC. Healthy Options is a Pharmaceutical Company which is considering investing in a new...
HEALTHY OPTIONS INC. Healthy Options is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardiovascular diseases. The company has to invest in equipment which costs $2,500,000 and falls within a MARCS depreciation of 5 years, and is expected to have a scrap value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT