Cathy started her own line of custom made, hand embellished wedding shoes. She opened up her own shop and paid $2500 in fixed licensing fees. She used about $3000 in raw materials and made $3500. At the end of the first month, Carly, her sister looked at her financials and told her that she was losing money and should shut down. Cathy is heartbroken. As an economics guru, what would you advise her to do and why?
Prescott Pharmaceuticals makes a number of generic versions of drugs. When Cymbalta (Duloxetine) lost its patent, Prescott invested $500,000 to obtain FDA approval and $100,000 to certify one of its production lines for its production. Construction of the production line for the drug will cost $2,000,000. Marginal costs for the tablet are $0.10 and they sell for $0.40 per tablet. But many firms have entered and now make Duloxetine causing sales to fall off. Prescott anticipates that it could use this production line for other drugs losing patent protection shortly. If forecasted sales are 5 million tablets, what is the breakeven price? Should Prescott discontinue selling this product?