20 Questions

1. How long is a patent good for?

2. What is the problem with patents and new drugs?

3. As it requires more time and money to get a new drug approved, what types of drugs will not get attention?

4. What is price discrimination?

5. How do drug companies practice price discrimination?

6. Describe the features of fixed costs and variable costs with respect to new drugs.

7. A drug costs one 100,000,000 to develop and 1 to make each dose.You can sell the drug for 100. How many do you have to sell to break even?

8. Name two barriers to entry in the hospital market.

10. What percent of a typical hospital bill do individual patients pay?

11. What motivates a non-for-profit hospital?

12. Name two things a not-for-profit might try to maximize.

13. What are the five Ps that motivate managers.

14. If a manager cannot increase his salary, what else could he do to increase his status?

15. What is asymmetric information?

16. What is collusion?

17. Why would hospitals collude?

18. What type of hospital would a university research hospital fall into?

19. How do hospitals measure productivity?

 20. Do all hospitals rely on profits?

Pharmaceutical Industry

Hospital Market

Exam 2

1. What is elasticity?

A. Percent change in price divided by percent change in quantity demanded.

B. Percent change in total revenue divided by percent change in total cost

C. Percent change in quantity demanded divided by percent change in price.

D. Percent change in total cost divided by percent change in total revenue

2. Is the demand for medical care price elastic or price inelastic?

A. elastic

B. inelastic

3. What is the income elasticity for medical care?

A. greater than 1

B. less than 1

C. zero

4. Should you maximize revenue or maximize profits?

A. revenue

B. profits

5. Where do you maximize profits?

A. Marginal Revenue = Marginal Cost

B. Total Cost = Total Revenue

C. Marginal Cost = Average Profit

D. Total Profit = Total Revenue

6. How long does a patent last?

A. 10 years

B. 15 years

C. 20 years

D. 70 years

7. If you are experiencing diseconomies of scale, what should you do?

A. get smaller

B. get bigger

C. stay the same size

8. What is "Learning by Doing" suggest about average costs?

A. average costs increase by 20% when you double output

B. average costs decrease by 80% when you double output

C. average costs decrease by 20% when you double output

D. average costs decrease by 80% when you double output

9. What is information asymmetry?

 The parties in a transaction do not have equal information.

10. What are the four types of market structures?

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

11. What are four barriers to entry?

Government Protection

Key Resource

Network Externalities

Economies of Scale - Natural Monopoly

12. What is the problem with patents and new drugs?

The approval process can require a considerable amount of time, leaving less time before the patent expires.

13. Can the drug approval process harm people? Why?

 The time and cost of approval can discourage new drug development.

14. What is an example of a network externality?

 Facebook, telephones, fax machines, and others.

15. What are antitrust laws?

 Laws intended to prevent collusion and price fixing.

16. Does it always make sense to hire the lowest-wage employee? Why?

Must consider the productivity as well as wage to determine cost.

17. Name two products that are substitutes.

Snickers or KitKat, Pizza  or Chicken, and others.

18. Name two products that are complements.

Hamburger and fries, left shoe and right shoe, and others

19. If fixed costs are 500 and variable costs are 10 and the price is 20, at what quantity will you break even?

 50

20. If fixed costs are 1000 and variable costs are 100 and the price is 150, what would be your profit or loss if you sold 75 units?

2750

25 Questions

1. Name four differences between the medical market and regular markets.
2. What is elasticity?
3. Name two products that are substitutes.
4. Name two products that are complements.
5. Is the demand for medical care price elastic or price inelastic?
6. What is the income elasticity for medical care?
7. If fixed costs are 500 and variable costs are 10 and the price is 20, at what quantity will you break even?
8. If fixed costs are 1000 and variable costs are 100 and the price is 150, what would be your profit or loss if you sold 75 units?
9. Should you maximize revenue or maximize profits?
10. Where do you maximize profits?
11. What is a sunk cost?
12. Can a company become too big? Why?
13. If you are experiencing diseconomies of scale, what should you do?
14. What is "Learning by Doing" suggest about average costs?
15. What is information asymmetry?
16. What are the four types of market structures?
17. What are four barrier to entry?
18. How long does a patent last?
19. What is the problem with patents and new drugs?
20. Can the drug approval process harm people?
21. What is an example of a network externality?
22. How do monopolists increase profits?
21. What happens to marginal revenue when a monopolist reduces price?
22. What are antitrust laws?
23. Do monopolies generally last very long without government protection?
24. What is a natural monopoly?
25. Does it always make sense to hire the lowest-wage employee?

Lecture 9 Market Structures

Lecture 8 Production and Costs