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Critically analyze the pros and cons of putting a price ceiling on prescription medicine. Make sure to use concepts such as government intervention, inefficiencies, price elasticity, etc. in your answer.

  1. In the first case, assume the medication is for a life threatening illness for which your child has been diagnosed.
  2. In a second case, assume the medication is for an improved quality of life issue, such as achieving a healthy weight.
  3. What are the impacts that the pharmaceutical company that makes the medications in question will experience? How will that affect the pharmaceutical company’s production decisions? What about its decisions to conduct further research into new drugs?


Increase in Fixed Costs

  1. Suppose a business experiences a sudden increase in its fixed costs. For example, suppose property taxes increase dramatically. What impact, if any, will this have on the following:
    1. the firm's AFC (average fixed cost);
    2. the firm’s AVC (average variable cost);
    3. the firm’s ATC (average total cost); and,
    4. the firm’s MC (marginal cost)?
  2. What changes, if any, is there likely to be in these same cost CURVES?

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(Top Tutor) Daniel C.
School: University of Maryland
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