Question

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 functions of the firm. Show
your steps.
b. Find the monopoly output, price and profit of the firm. Show your steps.

c. Draw a diagram to show the price, output and profit of the firm. Label
your diagram clearly.
d. Suppose the pharmaceutical firm needs to spend a lump sum of $M to
apply for the patent of the drug. Explain whether this cost of patent
affects the price, output and profit of the firm.

Answer 1