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    Cornell Pharamaceutical, INc., and Penn Medical , Ltd. supply generic durgs to treat a variety of illnesses. A major product for each company is a generic equivalent of an antibiotic used to treat postoperative infections. Proprietary cost and output information for each company reveal the following relations between marginal cost and output:
    MCc =$10 + $0.004Qc (Cornell)
    MCp = $8 + $0.008 Qp (Penn)
    The wohole sale market for generic drugs is vigorously price competitive, and neither firm is able to charge a jremium for its products. Thus, P = MR in this market.
    A. Determine the supply curve for each firm. Express price as a function of quantity and quantity as a function of price. (Hint: Set P = MR =MC to find each firm's supply curve.)
    B. Calculate the quantity supplied by each firm at prices of $8, $10 and $12. What is the minimum price necessary for each individual firm to supply output?
    C. Assuming these two firms make up the entire industry, determine the industry supply curve when P<$10.
    Give the rationale for each answer.

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    Solution Preview

    A. Determine the supply curve for each firm. Express price as a function of quantity and quantity as a function of price. (Hint: Set P = MR =MC to find each firm's supply curve.)
    <br>Short run supply curve is actually the part of MC that is above AVC.
    <br>Then set MC=P:
    <br>Cornell: P =10 + 0.004Qc= MCc or Qc=250P-2500
    <br>Penn: P =8 + 0.008Qp = MCc or Qp=125P-1000
    <br>
    <br>B. Calculate the ...

    Solution Summary

    Calculate the quantity supplied by each firm

    $2.49

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