patent monopoly

Drug Firm A has a patent monopoly on a valuable drug. Marginal Cost and Average variable cost is $2 per dose.
a) In the US the demand elasticity for the drug is -2 and in India the demand elasticity is -4. What will be the profit maximizing price in the US and in India?
b) At the profit maximizing price revenue in the US is $1 Billion per year and revenue in India is $100 million. What will be prices and revenue in the US and India if the Drug firm is required to sell the drug at the same price in the US and India?
c) Should drug patent holders be allowed to sell the identical drug in different countries at different prices? explain the reason.
d) The competitive rate of return is 10% per year. Are the profits earned by Drug Firm A excessive? explain the reason.
question two
Widget plants can produce any volume of widgets, last forever, have no scrap value and are only useful to produce widgets. A widget plant can be built in a day. The normal rate of return per year to investments as risky as widget manufacturing plants is 10%. There are five firms in the industry each with its own plant. Each firm has “operating profits” of $1 million per year over and above all variable costs.
a) One plant’s owner proposes that the five firms form a cartel cut output and raise prices so as to earn $2 million per year each. Will this work?
b) If instead the widget plants are now earning operating profits of $350,000 and could raise operating profit and formed a cartel they could earn $900,000? Could this cartel work as projected?
c) Could a widget cartel raise operating profits from $1 million to $2million if a widget plant took 10 years to build?
d) Why would a cartel be more likely to work if the widgets were sold to only a few customers than if widgets were sold to many customers?
e) One widget firm owner is extremely stubborn and competitive. He will never join a cartel. If the other four firms reach a cartel agreement would he gain by informing the Anti-trust Division of the Justice Department?

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