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Suppose that the (inverse) market demand curve for a new drug. Adipose-Off, designed to painlessly reduce body fat, is represented by the equation P = 100 â?" 2Q, where P is the price in dollars per dose and Q is the annual output. (The marginal revenue curve is thus given by the equation MR = 100 â?" 4Q.) Suppose also that there is a single supplier of the drug who faces a marginal cost, as well as average cost, producing the drug, equal to a constant $20 per dose. What are the monopolistâ??s profit-maximizing output and price? What is the resulting deadweight loss relative to the competitive outcome?

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Solution Summary

The monopolist's profit-maximizing output and price are identified. The resulting deadweight loss relative to the competitive outcome is also discussed.

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20 40 Q

Suppose that the (inverse) market demand curve for a new drug. Adipose-Off, designed to painlessly reduce body fat, is represented by the equation P = 100 â€" 2Q, where P is the price in dollars per dose and Q is the annual output. (The marginal revenue curve is thus given by ...

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