You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago (patents in the U.S. are valid for 20 years). Despite strong sales ($125 million last year) and a low marginal cost of producing the product ($0.25 per pill), your company has yet to show a profit from selling the drug.

This is, in part, due to the fact that your company spent $1.2 billion developing the drug and obtaining FDA approval.

An economist has estimated that, at the current price of $1.25 per pill, the price elasticity of demand for the drug is negative 2.5 (-2.5).