Your firm spent $100 million developing a new drug. It has now been approved for sale, and each pill cost $1 to manufacture. Your market research suggests that the price elasticity of demand in the general public is -1.1.
a. What price do you charge the public?
b. What would happen to profits if you charged twice as much?
c. What role does the $100 million in development costs play in your pricing decision?
d. The Medicaid agency has made a take-it-or-leave-it offer of $2 per pill. Do you accept it? Why or why not?