The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20- year patent on its production. FIGURE 10- 5
-Refer to Figure 10- 5. Assume this pharmaceutical firm has no fixed costs and is practicing perfect price discrimination among its buyers. At its profit- maximizing level of output, it will generate a total profit represented by

Question

The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20- year patent on its production.  FIGURE 10- 5
-Refer to Figure 10- 5. Assume this pharmaceutical firm has no fixed costs and is practicing perfect price discrimination among its buyers. At its profit- maximizing level of output, it will generate a total profit represented by

Quizplus · Accepted Answer

Since the firm is practicing perfect price discrimination, it will charge each buyer their maximum willingness to pay, which is represented by the demand curve. At the profit-maximizing level of output, the firm will produce where marginal cost equals the maximum willingness to pay, which is Q1. Thus, the firm will generate a profit represented by the area below the demand curve minus the area below the MC curve, up to Q1. This is represented by option C.

The Diagram Below Shows a Pharmaceutical Firm's Demand Curve and Marginal