- In this assignment, you are to prepare a report analyzingthe two problems below. Be sure to include your own interpretation and opinionas you prepare this report.
You are the manager of a small pharmaceutical company thatreceived a patent on a new drug three years ago. Despite strong sales ($150million last year) and a low marginal cost of producing the product ($0.50 perpill), your company has yet to show a profit from selling the drug. This is, inpart, due to the fact that the company spent $1.7 billion developing the drugand obtaining FDA approval.
Discuss why this firm is currently not making a profit.Include the concepts of total revenue, variable costs, fixed costs, and sunkcost.
Explain the relationship between total revenue and own priceelasticity of demand.
Based on this information, what can you do to boost profits?
The pharmaceutical industry operates in an aggressivelycompetitive market. There are a limited number of firms in the industry. Thisis due primarily to the high fixed cost of entering the market, the high costof research and development, obtaining patents, and dealing with mergers andacquisitions. Let us assume that over 70% of the products sold in this marketare protected by patents for the next eight years.
Identify and describe the market characteristics of perfectcompetition.
Explain price competition in perfect competition.
Explain the barriers to entry in perfect competition.
Does this pharmaceutical industry conform to an economistsdefinition of a perfectly competitive market? Justify your response.
Prepare a 2-3 page report in APA style that summarizes yourfindings.
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Content
Problem 1
Discusses why the firm is not currently making a profit. Describes the market characteristics of perfect competition. |
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Mechanics
Responses are written at the graduate level with proper punctuation, grammar, and mechanics.
Follows APA Style; resources properly cited. Minimum of two pages in length. |
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Total Points: 100
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