Graphing marginal revenue function for a monopoly company
Suppose the graph below represents the market demand for a patented prescription drug together with the marginal cost and average cost functions for producing the drug. (note: to simplify the problem, I have Supposed which MC is constant @ $20 for all Q over 4 million, and which AFC is reduced essentially to 0 when Q reaches 5 million, Thus, the diagram Supposes ATC = AVC= MC = $20 for all Q over 5 million.
A) Draw the marginal revenue function for this company.
B) Illustrate what is the profit-maximizing price for this company?
C) On the graph show the area, which area represents the net loss to society resulting from the monopoly power conferred by the patent?
D) Illustrate what do you predict will happen to the structure of competition and to the price in this market when the patent expires? (Hint: use the concept of "Minimum efficient scale" of production in your answer.)