Profit maximization, Optimal Profit

There are 100 patients who could benefit from a new drug, Tipilor, manufactured by Zifer. Patient i has

willingness to pay i, i=1,…,100. Ignore fixed costs and assume marginal cost, c, is constant. a) What is the

profit maximising price and resulting profit? b) Now assume all patients have insurance which means they

only pay 10% of the price as a co-payment. What is the profit maximising price and resulting profit? c)

Zifer sets up a charity to cover the co-payment for poor people. Patients 1, 2, …, 50 are considered poor.

What is the profit maximising price and resulting profit? d) For c = 10, calculate optimal profit in a), b) and

c) and conclude whether setting up the charity is profitable.

Sample Solution

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