Ask Question, Ask an Expert


Ask Business Economics Expert

Elasticity , profit maximizing price- output and social welfare effects of first degree price discrimination for the drug company Botox

The patented drug, Botox, is currently sold by Allergan, Inc. It was originally used as a "miracle drug" to treat two relatively rare eye conditions that led to functional blindness, but when its usefulness in cosmetic applications became apparent, its sales expanded rapidly. Prior to the FDA approval for cosmetic use, sales were in the ballpark of $400 million annually, but after approval in 2002, sales doubled. The current price for a vial of Botox, is $400, and the marginal cost to produce a vial is $25. Botox is usually injected under the skin around the eyes and in the forehead in order to paralyze the muscles and to smooth the appearance of wrinkles. These wrinkle-smoothing effects last approximately 120 days, requiring repeated injections to maintain the appearance of youth.

a) Utilizing the Lerner index, find out the price elasticity of demand for Botox and interpret what this value means to total revenue if the price of Botox were increased one percentage point.

b) The inverse demand for Botox is: P = 775 - 375Q, where Q represents millions of vials of Botox and P is in dollars per vial. Derive the marginal revenue curve and determine whether the current price and quantity Allergen is setting is maximizing its monopoly profits.

c) If Allergen is able to use first-degree price discrimination, what is the lowest price it will charge for a vial of Botox? describe the concept of first degree price discrimination, and show how social welfare will be affected if Allergen is permitted to set price in this way.

d) In another recent article,[1] a different kind of product called a dermal filler used to "plump up folds and creases" and intended for facial use below the nose is becoming a hot seller, too. Allergan is beginning to roll out its version, called Juvederm, designed to compete with the current market leader, Restylane, produced by Medicis. Medicis is in the process of introducing its own injectable neurotoxin to compete directly with Botox for wrinkle-smoothing above the nose ("Reloxin"). Discuss the economies of scope in producing and marketing these two kinds of cosmetic products, and the competitive implications for this market if Medicis can successfully launch its "Reloxin" and Allergan can create demand for its Juvederm. How will this entry affect pricing power in this market? Discuss, being sure to cite any sources you use.


Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M916112

Have any Question? 

Related Questions in Business Economics

Assignment -consider the following cobb douglas production

Assignment - Consider the following Cobb Douglas production function where Y is maize output, X 1 is labour input, and X 2 is the capital. Data for estimating this equation is given in the Table below. Y = β 0 X 1i β_1 X ...

Free trade and restricted trade - benefits and cost1-2

Free Trade and Restricted Trade - Benefits and Cost 1-2 paragraphs APA format/ no plagarism Using your own words, define both free and restricted trade. What do you feel are the benefits and the cost to having free trade ...

Assignmentyou must submit 2 files to this link once done as

Assignment You must submit 2 files to this link once done as follows: Part 1) An MS Excel spreadsheet (.xls or .xlsx no other file formats will be accepted) use the dataset spreadsheet provided for the assignment and inc ...

Assignmentmoral and ethical requirements should serve as

Assignment Moral and ethical requirements should serve as drivers which encourage a business to invest in or spend money on cybersecurity products, services, and programs. You have been invited to participate in a "light ...

Assignmentarticle reportplease select a marketing topic you

Assignment Article Report Please select a marketing topic you learned and then search in the Wall Street Journal (either online or hardcopy *) and select an article about that topic within the last 12 months. To do this, ...

Assignmentpart idirections please write a paper that is at

Assignment PART I Directions: Please write a paper that is at least two to three pages in length in which you address the questions below. Write your paper in APA format with at least one cited scholarly reference. Revie ...

1 there is a small country whose domestic demand and supply

1) There is a small country whose domestic demand and supply for a good x are given below (where P is the price of X) [drawing a demand and supply graph may be helpful to you, but is not required.] D: P=100-Q S: P=10+2Q ...

Question 1 for the following situations calculate

Question 1 . For the following situations, calculate elasticity of demand and comment on the answer.                             When the price of commodity X was Rs. 12/-, 40 units it were demanded. When the price decre ...

Assessment task in this assessment students are required to

ASSESSMENT TASK: In this assessment, students are required to demonstrate their ability to apply economic principles learnt in this subject to analysing real-world business operations and evaluate how their long-run busi ...

Cite the sources used to answer this question provide the

Cite the source(s) used to answer this question. Provide the source(s) below your response and apply APA guidelines for references. 1) Class, is it possible for a business to show an accounting profit, but actually earn ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro