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Managerial economics classIn this assignment, you are to prepare a report analyzing the two problems below. Be sure to include your own interpretation and opinion as you prepare this report.You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago. Despite strong sales ($150 million last year) and a low marginal cost of producing the product ($0.50 per pill), your company has yet to show a profit from selling the drug. This is, in part, due to the fact that the company spent $1.7 billion developing the drug and obtaining FDA approval.Discuss why this firm is currently not making a profit. Include the concepts of total revenue, variable costs, fixed costs, and sunk cost.Explain the relationship of between total revenue and own price elasticity of demand.Based on this information, what can you do to boost profits?The pharmaceutical industry operates in an aggressively competitive market. There are a limited number of firms in the industry. This is due primarily to the high fixed cost of entering the market, the high cost of research and development, obtaining patents and dealing with mergers and acquisitions. Let us assume that over 70% of the products sold in this market are protected by patents for the next eight years.Identify and describe the market characteristics of perfect competition.Explain price competition in perfect competition.Explain the barriers to entry in perfect competition.Does this pharmaceutical industry conform to an economist’s definition of a perfectly competitive market? Justify your response.
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