It is very expensive to do the research to invent a new drug, but the cost of producing the drug once it has been invented is only $1 per dose. Assume the inventor has a patent, which creates a monopoly.
a) Draw a diagram showing the monopolist's profit-maximizing price, quantiy, and profits
b) Explain whether the monopolist's equilibrium results in a the socially optimal price and quantity.
c) Would it be a good policy to impose a price ceiling? If so at what level? Explain.
d) Would it be a good policy to eliminate patents, so any firm can produce the drug? Explain