4.Your firm spent $100 million developing a new drug. It has now been approved for sale,...

4.Your firm spent $100 million developing a new drug. It has now been approved for sale, and each pill costs $1 to manufacture. Your market research suggests that the price elasticity of demand in the general public is −1.1.

What price do you charge the public?
What would happen to profits if you charged twice as much?
What role does the $100 million in development costs play in your pricing decision?  
The Medicaid agency has made a take-it-or-leave-it offer of $2 per pill. Do you accept? Why or why not?

Expert Solution

Rahul Sunny answered 2 years ago

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