extra_patents_price_discrimination - Econ 1101HolmesFall...

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1 Econ 1101—Holmes—Fall 2009 Practice Questions about Patents and Price Discrimination This worksheet contains a two practice questions related to patents and price discrimination. (See Interapp 7 for background.) Demand in United States for Econoflex (Total Units sold per year) -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 0 1 2 3 4 5 6 7 8 9 101112131415161718192021222324 D $ Q 1. The Big Pharma Corporation is considering developing a new drug Econoflex. The demand curve for the drug in the United States is illustrated above. This shows how the quantity sold per year varies with the price. Suppose the marginal cost to produce one unit of Econoflex is $2. (This also equals average variable cost.) In this problem, we will analyze the incentive for Big Pharma to innovate and develop the drug. We will consider two possibilities for the fixed cost, $40 or $60. We will consider two possibilities for the patent system. In the “weak patent regime,” Big Pharma can get a patent, but it only lasts one year. After the year is over, the patent expires, generic competitors show up, and
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This note was uploaded on 04/06/2010 for the course ECON 1101 taught by Professor Someguy during the Fall '07 term at Minnesota.

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extra_patents_price_discrimination - Econ 1101HolmesFall...

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