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A pharmaceutical company is a monopoly in Alzheimer's disease drugs and faces the following inverse demand curve:
, where α is the level of advertising. Its marginal production costs are constant at m.
(a) Show in a diagram what happens to its price, revenues and production costs if it raises advertising from zero to one unit.
(b) Use the diagram in (a) to discuss under what condition is advertising by this monopoly profitable?
#definition
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