a) In a sentence or two, explain how patents lead to monopoly power.\nb) Consider a firm who has just patented a new drug. They face a demand for this drug:\n$Q_d = 400 - 2p$ and have a constant marginal cost of $50 per unit they produce. Given\nthis information, their marginal revenue will be $MR(Q) = 200 - Q$. What is the profit\nmaximizing price and quantity for this new drug?\nc) Under the optimal quantity you found in part b, what is the consumer surplus? What is\nthe producer surplus? What is total surplus?\nd) If the patent expires and many firms start producing generic versions of the drug (using\nthe original firm's same production technology), what will be the new equilibrium price\nand quantity?\ne) Under the competitive market equilibrium you found in part d, what is the consumer\nsurplus? What is the producer surplus?
