A product you produce has the following annual demand function:
P = 90 -0.003Q
The marginal cost of producing the product is $30. If the firm pays a fee of $50,000 to the General Drug Research Council, it can have its product’s effectiveness certified. The demand function for a certified product is expected to be
P = 100 -0.003Q
a. Calculate the price, output, and profit contribution if the product is not certified.
b. Calculate the price, output, and profit contribution if the product is certified.
c. Should the firm undergo the certification process?
