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Suppose a drug developer just received a patent on a new chemical compound, which could be used in developing a new drug to control cholesterol. The developer knows (with certainty) that it could successfully develop the compound into a safe, effective (and FDA-approved) drug. If it does so, it can expect to earn a profit of $150 million per year from sales of the drug while the drug is under patent. Assume the firm has a 10% discount rate.
a) If developing the new drug will take 14 years, what is the maximum the drug developer should be willing to invest to develop the new drug? Assume the entire R&D investment must be made in year 1. (That is, if the firm invests $C in year 1, they stand to earn $150m annually from year 15 through year 20. Your job is to calculate C.)
b) If developing the new drug will take 12 years, what is the maximum the drug developer should be willing to invest to develop the new drug?
c) Observers often criticize the FDA's slow process for approving new drugs. Identify two problems that are created if the drug approval process is unnecessarily slow.
If R and F both have 12 hours of labor that they can give to catching fish or goats, and R requires 1 hour to catch a fish and 2 hours to catch a goat, F requires 6 hours to catch a fish and 3 hours to catch a goat. They are able to trade at Pf=Pg..
Unique creations holds a monopoly position in the production and sale of magnometers. The cost function facing Unique is estimated to be TC=$100,000+20Q a) What is marginal cost for Unique b) If the price elasticity of demand for Unique is current..
Bruno's Lunch Counter is expanding and expects operating cash flows of $26,000 a year for 4 years as a result. This expansion requires $39,000 in new fixed assets. These assets will be worthless at the end of the project.
The Zenvox TV Company faces a demand function for its products that can be expressed as Q = 4,000 - P + 0.5i, where Q is the number of tv's, P is the price per tv, and i is the average monthly income. Average monthly income is currently equal to $..
Develop an estimate for the cost of washing and drying a 12-pound load of laundry. Remember to consider all the costs. Your time is worth nothing unless you have an opportunity to use it for making, or saving money on other activities.
Discuss the differences you observe in your answers above between the monopoly and perfectly competitive firm. x-axis 0 8 18 21 30 price and cost per unit y-axis 0 20 33 35 40 quanity.
A clinic uses doctors and nurses optimally and is servicing the maximum number of patients given a limited annual payroll. The last doctor hired treated 1,600 extra patients in a year, while the last nurse hired treated 1,000 extra patients in a y..
Wilma bought a 10-year $1000 bond when the interest rate was 5% per year. So her bond would provide her with $50 at the end of each of ten successive years; and the $1000 is also returned at the end of ten years. She has just collected her seventh..
Suppose that there are three firms, who produce homogeneous products, and whom have the same marginal cost which is constant over output. These firms play an infinitely repeated Bertrand pricing game. Each period they simultaneously set prices.
Profits University produces student credit hours(y) with two inputs:Professors' hours of work(P) and TA's hours of work(T) according to the production function:f(P,T)=10P^(1/2)*T^(1/4). Both inputs are variable. Suppose professors are paid $80 per..
A government agency has 6000 employees. As an alternative to the traditional five-day work week, employees were asked whether they preferred a four-day work week (10 hours per day) or flexible hours. The table below shows the results by age catego..
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