-Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a monopoly for its new inhaler, if Prime Pharmaceuticals could perfectly price discriminate, then producer surplus would equal

Question

Quizplus · Accepted Answer

Producer surplus is the area above the marginal cost curve and below the price line. In the case of perfect price discrimination, the firm is able to charge each consumer exactly their willingness to pay, capturing the entire area under the demand curve down to the marginal cost curve. This area represents the total value created by the production and sale of the inhalers minus the cost of production. Without seeing the specific figure mentioned, the concept of perfect price discrimination implies that the producer surplus would be maximized, capturing all consumer surplus, which is why the highest value given, $64 million, would be the correct answer.

-Prime Pharmaceuticals Has Developed a New Asthma Medicine, for Which