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    A pharmaceutical firm invests £1m to develop a new drug. it will cost £100 to produce each dose, over and above the development costs. the marketing department knows the demand curve for the drug is linear and calculates that a price of £200 will maximise profits from the drug with annual sales of 100,000

    1. What is the absolute value of the elasticity of demand at the price and quantity picked by the pharmaceutical firm?

    2. Say you can pick a price and force the firm to sell as much as is demanded at that price. what price would maximise the sum of consumer and producer surplus?

    3. Say you can pick a price and force the firm to sell as much as is demanded at that rice. you pick the price at which the sum of consumer and producer surplus is maximised. how many doses of the product will be sold at that price?
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    The first question is the demand function direct (gradient of 1) or not?

    Equation

    PED = \frac{dQ}{dP}\times\frac{P}{Q}

    PED = \frac{dQ}{dP}\times\frac{200}{10  0000}

    PED = \frac{dQ}{dP}\times\dfrac{1}{500  }
 
 
 
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