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.Suppose this pharmaceutical firm is charging a single price for its drug and is maximizing its profits.If it then begins to perfectly price discriminate among its buyers it will

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.Suppose this pharmaceutical firm is charging a single price for its drug and is maximizing its profits.If it then begins to perfectly price discriminate among its buyers it will

Quizplus · Accepted Answer

Perfect price discrimination means that the firm can charge each customer their maximum willingness to pay, which results in the entire area under the demand curve being captured by the producer. This means that all of the consumer surplus (areas D + E + C + F + H) is transferred to the producer as additional profit. However, since there is no deadweight loss (no economic surplus loss to society as a whole), the total surplus in the market remains the same. The firm will still be equating MR and MC, and since it is able to charge each customer their maximum willingness to pay, it is not necessary for it to reduce its total output. Therefore, the best answer is B.

The Diagram Below Shows the Demand Curve and Marginal Cost