1. Explain the profit-maximizing production decision of a monopoly firm. Describ
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Question
1. Explain the profit-maximizing production decision of a monopoly firm. Describe the assumptions about the market structure of monopoly, how these assumptions relate to the market power of the monopoly firm, and the condition that guarantees the maximum profit. Read the 2018 article “EpiPen Gets First Generic Rival After Furor Over High Price” from Bloomberg Businessweek found at (article is also available as a PDF on Blackboard): https://www.bloomberg.com/news/articles/2018-08-16/epipen-gets-first-generic-rival-afterfuror-over-high-price-tag
a. What is an EpiPen and which pharmaceutical company owns the rights to sell it? How much did the EpiPen cost before and after these rights were purchased? What characteristic do economists label the ability to change price in this way
b. Besides pricing, what is another concern for consumers that derives from the market structure for the EpiPen?
c. What is the main threat being described in the article to the seller of the EpiPen? What might be the consequences of this threat? How has the seller of EpiPen tried to defend itself in the market?
d. How is the threat described in the article different from similar threats in the past?
Explanation / Answer
And 1- Profit Maximization:- The monopolist's profit maximizing level of output is found by equating its marginal revenue with its marginal cost , which is the same profit maximizing condition that a perfectly competitive firms uses to determine its equilibrium level of output . In order to determine the profit maximising level of output, the monopolist will need to supplement its information about market demand and prices with data on its costs of production for different levels of output.
In a monopolist's market, there is only one firm that produces a product. There is absolute product differentiation because there is no substitute. One characteristics of a monopolist is that it is a profit maximizer. Since there is no competition in a monopolistic market, a monopolist can set the price level and the quantity demanded. The level of output that maximizes a monopoly's output is calculated by equating its marginal cost to it's marginal revenue. The marginal cost of production is the change in the total cost that arises when there is a change in the quantity produced.
(A)- EpiPen is an injection that contains epinephrine, a chemical that narrows blood vessels and opens airways in the lungs. It can be used for suffering from allergies like wheezing, uneven breathing, swelling, increased or decrease heart rate and other reactions.The EpiPen passed hands a few times on the commercial side of things before ending up with Merck KGaA, a German company that solds it's generic business to Mylan Pharmaceutical.Generic drugmaker Mylan obtained the rights to sell EpiPen. Mylan has increased the price from $94 to $609, in response to the outrage over the high price tag, Mylan announced a change in the company's co-pay coupon system, more than doubling the available discount.
(B)- The public and many politicians have outraged by the high cost of EpiPen, a life-saving device for people with severe allergies . Ignoring that moment issue related to health care policy most patient pay only part. Besides that there are another concern first, is that companies do not have unlimited pricing power, there is demand side to every market and in a free market price are set by interaction of supply and demand. Sellers can demand as high a price as they wish, but if they set that price too high, buyers will disappear. Second, is about the value of free market and competition. The reason that Mylan has been able to consistently raise the price of it's EpiPen is that nobody else sells one in the U.S. Europe has eight different companies selling similar devices.
(C)- there are alternative to EpiPen s that contains the same active ingredient, but because they have slightly different chemical formulation, most doctors don't prescribe them as a substitute, a price hike of more than 500 percent. Patient with a high health insurance deductible bear the brunt of that cost. It's so pricey that some EMTs and firefighters are using standard syringe instead of paying for EpiPen.faced with so much bad press, Mylan has relented on the cost. The company is offering vouchers to reduce the amount that consumer are paying out of pocket. But many critics aren't satisfied. That's why policy makers and members of prominent medical societies are calling for Mylan to lower the cost itself, as the fervor around the price hike continue and it's stock continue to plummet, Mylan may be left with few options.
(D)- Their purpose was to evaluate unused, outdated EpiPen and EpiPen Jr autoinjectors, obtained from patients at risk for anaphylaxis,for epinephrine bioavailability and epinephrine content. They conducted a prodprospec, randomized, cross-over study of epinephrine bioavailability after injection from outdated autoinjectors in rabbits, control includes EpiPen and EpiPen Jr autoinjectors that had not expired and results was 28 EpiPen and 6EpiPen Jr autoinjectors were studied. Most were not discolored and did not contain precipitates . For this treatment, they reccomrec the use of EpiPen and EpiPen Jr autoinjectors that are not outdated. If, only autoinjectors available is an outdated once, it could be used as long as no discoloration are apparently because the potential benefits of using it is greater than the potential risk of suboptimal epinephrine dose or not at all.
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