Q. Write a 3-page (minimum 750 words) response to the following problem. Mirk Labs is a pharmaceutical company that currently enjoys a patent monopoly in Canada, Europe also in the United States on Zatab, an allergy medication. The global demand for Zatab is: Qd = 15.0 - 0.2P where Qd is annual quantity demanded (in millions of units) of Zatab, and P is the wholesale price of Zatab per unit. A decade ago, Mirk Labs incurred $60 million in research and development costs for Zatab. Current production costs for Zatab are constant and equal to $5 per unit.
(a) What wholesale price will Mirk Labs set? Explain how much Zatab will it create and sell annually? How much annual profit does the firm make on Zatab?
(b) The patent on Zatab terminates in the next month; also dozens of pharmaceutical firms are prepared to enter the market with identical generic versions of Zatab. Illustrate what cost as well as quantity will result once the patent expires and competition emerges in this market? Explain your answer.