6) Merck & Co. markets a product called ZOCOR that treats people who suffer from
ID: 1134372 • Letter: 6
Question
6) Merck & Co. markets a product called ZOCOR that treats people who suffer from high cholesterol and heart disease. ZOCOR works by reducing the amount of cholesterol in your blood. ZOCOR can dramatically lower LDL ("bad") responsible for depositing cholesterol in artery walls and elevate HDL ("good") cholesterol, which helps return LDL cholesterol to the bloodstream, thus preventing buildup of cholesterol in the artery walls. Elevated LDL cholesterol is associated with a greater risk of heart disease, and heart disease is the leading cause of death for people in the United States.
A. Assume the following table shows relevant information for ZOCOR. Complete the table.
Price
per
unit
Output
(billion)
Total
Revenue
(billion)
Marginal
Revenue
(billion)
Total
Cost
(billion)
Marginal
Cost
(billion)
Average
Cost
($)
$30
0
$ 6
28
1
30
26
2
52
24
3
72
22
4
90
20
5
100
18
6
108
16
7
133
B. Assuming cost conditions remain constant, what is the monopolistically competitive high-price/low-output long-run equilibrium? C. What is the monopolistically competitive low-price/high-output equilibrium? (Note: This is also the perfectly competitive equilibrium.)
Price
per
unit
Output
(billion)
Total
Revenue
(billion)
Marginal
Revenue
(billion)
Total
Cost
(billion)
Marginal
Cost
(billion)
Average
Cost
($)
$30
0
$ 6
28
1
30
26
2
52
24
3
72
22
4
90
20
5
100
18
6
108
16
7
133
Explanation / Answer
ANSWER:
1)
Price per unit
Output
(billion
Total
Revenue
(billion)
Marginal
Revenue
(billion)
Total
Cost
(billion)
Marginal
Cost
(billion)
Average
Cost
($)
$30
0
0
$ 6
28
1
28
28
30
24
30
26
2
52
24
52
22
26
24
3
72
20
72
20
24
22
4
88
16
90
18
22.5
20
5
100
12
100
10
20
18
6
108
8
108
8
19
16
7
112
4
133
25
18
2) The monopolistically competitive high price-low output equilibrium occurs where
P = AC = $24, Q = 3(billion) & = TR - TC = 0.
There will be no excess profits i.e. MR = MC = $20, and also no incentive for either contraction or expansion. These types of an equilibrium is typical of monopolistically competitive industries wherein each individual firm is retaining certain pricing discretion for the long-run.
3) The monopolistically competitive low price-high output equilibrium occurs where
P = AC = $18, Q = 6(000) & = TR - TC = 0.
There will be no excess profits i.e. MR = MC = $8, and also no incentive for either contraction or expansion. Such situationa are similar to the perfectly competitive equilibrium.
Price per unit
Output
(billion
Total
Revenue
(billion)
Marginal
Revenue
(billion)
Total
Cost
(billion)
Marginal
Cost
(billion)
Average
Cost
($)
$30
0
0
$ 6
28
1
28
28
30
24
30
26
2
52
24
52
22
26
24
3
72
20
72
20
24
22
4
88
16
90
18
22.5
20
5
100
12
100
10
20
18
6
108
8
108
8
19
16
7
112
4
133
25
18
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