Your company manufactures controllers used in the production of commercial air conditioning units and currently selling them at $50 each. Marginal costs are $30 for production up to 10,000 units per month. Production cannot be pushed beyond 10,000 units per month. Is your company selling at the optimal price at which the company can maximize profits, if the price elasticity of demand is estimated to be -2 for prices between $45 and $65 per controller?
Your company has developed a drug called Matrox that is an effective treatment for migraine headaches. You have just discovered that it can also be used for organ transplant patients to reduce the risk of organ rejection. The demand for migraine medications is considerably more elastic than the demand for drugs to reduce the risk of organ rejections. A study has indicated that the elasticity of demand for Matrox as a migraine medication is -4.0 but as a transplant drug it is -1.5. The marginal cost
is $5 per dose. Assuming you can price differently for the two different types of customers of the same basic drug, what would be the prices in the two markets?
Describe the term economies of scale. Give a real life example of a business where you can see an application of this term.