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.
FIGURE 10-6
-Refer to Figure 10-6.Assume this pharmaceutical firm charges a single price for its drug.At its profit-maximizing level of output it will produce

Question

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.
  FIGURE 10-6
-Refer to Figure 10-6.Assume this pharmaceutical firm charges a single price for its drug.At its profit-maximizing level of output it will produce

Quizplus · Accepted Answer

At its profit-maximizing level of output, a monopolist will produce at the quantity where marginal revenue equals marginal cost and charge a price that is greater than marginal cost. In Figure 10-6, this occurs at point Q0, where the marginal revenue curve intersects the marginal cost curve. The monopolist will then charge a price of p0, which is greater than the marginal cost of production.

The Diagram Below Shows the Demand Curve and Marginal Cost