Question: Cornell Pharmaceutical Inc and Penn Medical Ltd supply generic drugs

Cornell Pharmaceutical, Inc., and Penn Medical, Ltd., supply generic drugs to treat a wide variety of illnesses. A major product for each company is a generic equivalent of an antibiotic used to treat postoperative infections. Proprietary cost and output information for each company reveal the following relations between marginal cost and output:
MCC = $10 + $0.004QC. (Cornell)
MCP = $8 + $0.008QP. (Penn)
The wholesale market for generic drugs is vigorously price competitive, and neither firm is able to charge a premium for its products. Thus, P = MR in this market.
A. Determine the supply curve for each firm. Express price as a function of quantity and quantity as a function of price. (Hint: Set P = MR = MC to find each firm’s supply curve.)
B. Calculate the quantity supplied by each firm at prices of $8, $10, and $12. What is the minimum price necessary for each individual firm to supply output?
C. Assuming these two firms make up the entire industry, determine the industry supply curve when P < $10.
D. Determine the industry supply curve when P > $10. To check your answer, calculate quantity at an industry price of $12 and compare your answer with part B.

  • CreatedFebruary 13, 2015
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