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

The profit-maximizing level of output is where marginal revenue equals marginal cost, which occurs at point Q3 in the diagram. At this point, the firm will produce Q₀ units and charge a price of p₀. This is because the demand curve represents the willingness to pay of all consumers, so charging a higher price would result in fewer units sold and a lower profit. Charging a lower price would increase demand, but would result in lower profits since the marginal cost of production is higher than the marginal revenue at that level of output.

The Diagram Below Shows the Demand Curve and Marginal Cost