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8. Rent seeking The following graph shows the demand, marginal revenue, and marginal cost curves for a single- price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist.

8. Rent seeking The following graph shows the demand, marginal revenue, and marginal cost curves for a single- price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist.

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: Monopoly
Section: Chapter Questions
Problem 9PA
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8. Rent seeking The following graph shows the demand, marginal revenue, and marginal cost curves for a single- price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist. PRICE (Dollars per dose) 20 18 16 14 12 2 0 MC = ATC MR Demand 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Millions of doses per year) Monopoly Outcome Monopoly Profits ? Suppose that should the patent on this particular drug expire, the market would become perfectly competitive, with new firms immediately entering the market with essentially identical products. Further suppose that in this case the original firm will hire lobbyists and make donations to several key politicians to extend its patent for one more year. The firm is prepared to spend up to $ million to extend its patent.
Transcribed Image Text:8. Rent seeking The following graph shows the demand, marginal revenue, and marginal cost curves for a single- price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist. PRICE (Dollars per dose) 20 18 16 14 12 2 0 MC = ATC MR Demand 0 2 4 6 8 10 12 14 16 18 20 QUANTITY (Millions of doses per year) Monopoly Outcome Monopoly Profits ? Suppose that should the patent on this particular drug expire, the market would become perfectly competitive, with new firms immediately entering the market with essentially identical products. Further suppose that in this case the original firm will hire lobbyists and make donations to several key politicians to extend its patent for one more year. The firm is prepared to spend up to $ million to extend its patent.
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