Q. Mirk Labs is a pharmaceutical company that currently enjoys a patent monopoly in Europe, Canada, and the United States on Zatab, an allergy medication. The universal 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 long time ago, Mirk Labs acquired $60 million in research and development costs for Zatab. Existing production costs for Zatab are stable and equal to $5 per unit.
(a) Elucidate wholesale price will Mirk Labs set? Explain how much Zatab will it produce and sell annually? How much yearly profit is the firm make on Zatab?
(b) The copyright on Zatab expires next month as well as dozens of pharmaceutical firms are prepared to enter the market with identical generic versions of Zatab. What price and quantity will result once the copyright expires and competition emerges in this market? Elucidate your answer.