Answer to Question #70474 in Microeconomics for Jess

Question

The pricing of pharmaceutical products can be controversial. A recent example is EpiPen
produced by Mylan which is used to treat anaphylaxis. The retail price of an EpiPen is
$300, while industry sources estimate that it costs around $30 to produce each unit (i.e.
one dose). Despite this high price, Mylan sells 1 million units a year.

Derive the marginal revenue function. If the marginal cost of production is constant at
$30, calculate the producer surplus, consumer surplus, and deadweight loss from
monopoly pricing.

Answer 1

P = $300, ATC = $30, Q = 1 million units a year.
MR = TR' = (P*Q)' = MC = $30.
As we don't know the demand function, we can't derive producer surplus, consumer surplus, and deadweight loss from
monopoly pricing.