Minimum efficient scale
Not what you're looking for?
Assume the graph attached represents the market demand for a patented prescription drug together with the marginal cost and average cost functions for producing the drug. (note: to simplify the problem, I have assumed that MC is constant @ $20 for all Q over 4 million, and that AFC is reduced essentially to 0 when Q reaches 5 million, thus the diagram assumes ATC = AVC= MC = $20 for all Q over 5 million)
A)Draw the marginal revenue function for this firm.
B)What is the profit-maximizing price for this firm?
C)On the graph show the area, which represents the net loss to society resulting from the monopoly power conferred by the patent.
D)What do you predict will happen to the structure of competition and to the price in this market when the patent expires? (Hint: use the concept of "Minimum efficient scale" of production.)
Purchase this Solution
Solution Summary
This post uses the concept of "Minimum efficient scale" of production.
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.