A pharmaceutical company is the only seller of a prescription allergy medication. Demand for the drug in California is given by Q(P)=240-6P. The cost function is C(Q)=4Q. A.
Assume the company only sells the drug in California and that it charges a uniform price. Calculate the profit-maximizing quantity and price. Calculate the deadweight loss due to monopoly.
B. Draw a diagram that shows the monopoly quantity and price, the quantity and price that would maximize total surplus, and the deadweight loss due to monopoly.