In this assignment, you are to prepare a report analyzing the two problems below. Be sure to include your own interpretation and opinion as you prepare this report.
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You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago. Despite strong sales ($150 million last year) and a low marginal cost of producing the product ($0.50 per pill), your company has yet to show a profit from selling the drug. This is, in part, due to the fact that the company spent $1.7 billion developing the drug and obtaining FDA approval.
- Discuss why this firm is currently not making a profit. Include the concepts of total revenue, variable costs, fixed costs, and sunk cost.
- Explain the relationship between total revenue and own price elasticity of demand.
- Based on this information, what can you do to boost profits?
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The pharmaceutical industry operates in an aggressively competitive market. There are a limited number of firms in the industry. This is due primarily to the high fixed cost of entering the market, the high cost of research and development, obtaining patents, and dealing with mergers and acquisitions. Let us assume that over 70% of the products sold in this market are protected by patents for the next eight years.
- Identify and describe the market characteristics of perfect competition.
- Explain price competition in perfect competition.
- Explain the barriers to entry in perfect competition.
- Does this pharmaceutical industry conform to an economists definition of a perfectly competitive market? Justify your response.
Prepare a 2-3 page report in APA style that summarizes your findings. Use at least two additional credible resources and cite appropriately. Submit your report using the instructions below.
OutcomeContent
Problem 1
Discusses why the firm is not currently making a profit.
Includes the concepts of total revenue, variable costs, fixed costs, and sunk cost.
Discusses explanation of the relationship between total revenue and own price elasticity of demand.
Recommends and explains how the firm can boost profits.
Problem 2
Describes the market characteristics of perfect competition.
Explains price competition in perfect competition.
Explains barriers to entry in perfect competition.
Explains why or why not this industry conforms to a perfectly competitive market.
80 pts
Full Marks
0 pts
No Marks
80 pts
This criterion is linked to a Learning OutcomeMechanics
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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