Ask Question
21 May, 13:14

Recently, Pfizer and Allergan - the makers of Viagra and Botox, respectively - initiated a $160 billion merger. Pharmaceutical companies tend to spend a greater percentage of sales on R&D activities than other industries. The government encourages these R&D activities by granting companies patents for drugs approved by the Food and Drug Administration. For instance, Allergan spent large sums of money developing its popular wrinkle-removing neurotoxin, Botox, which is currently protected under a patent. Botox sells for about $15 per vial. Calculate the Lerner index if the marginal cost of producing Botox is $1.50 per vial.

+2
Answers (1)
  1. 21 May, 13:42
    0
    Lerner index for Botox = 0.9

    Explanation:

    The Lerner index measures market power in an industry. The formula for calculating the Lerner index is: L = (P - MC) / P

    Lerner index for Botox = ($15 - $1.50) / $15 = 0.9

    0.9 in the Lerner index means that a company has a very large market power. Under this situation, this is quite logical since Allergen has a monopoly on Botox, at least until the patent expires.

    The Lerner index varies between 0 and 1, with 0 being a situation of perfect competition and 1 a monopolistic situation.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Recently, Pfizer and Allergan - the makers of Viagra and Botox, respectively - initiated a $160 billion merger. Pharmaceutical companies ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers