1. A) $52.1
B) $496.063
C) PED = 0.000917
D) $1122.32
E) PED = 0.2423
2. At first, the PED of Daraprim is extremely close to 0, making it almost perfectly
price inelastic. Once they dramatically raised their prices, only a handful of patients
abandoned their prescriptions, which did slightly increase the PED of Daraprim, but it
was still very inelastic.
3.When the PED of a product is 0, that means it is perfectly inelastic. The values we
have calculated for Daraprim are as close to zero as they can get, because Daraprim
is a life-saving medication, it has no alternatives, and there is no competing
pharmaceutical company that may make a similar product, thus pushing price down.
This means that no matter how much Daraprim costs, patients do not have much of
a choice in purchasing it.
4. The PED should increase, but it will stay below 1. As long as there are no
substitutes, patients will be forced to continue buying Daraprim. Some prescriptions
will be abandoned just like after the previous price hike, but Daraprim will remain
highly price inelastic.
5. As Daraprim has inelastic demand, a rise in price will increase total revenue, and
there will only be a small change in quantity demanded.
6. As soon as other substitutes show up, the PED of Daraprim will dramatically
increase. This is because competitors will want to break into the market, and they
can only do that if they have competitive pricing, meaning they must undercut
Daraprims pricing. Once there is a cheaper drug available that has identical effects,
patients and insurers will opt for the cheaper drug, meaning that Daraprim will also
have to decrease their prices. This makes Daraprim more sensitive to price changes,
thus increasing its PED.
7. They are unlikely to decrease their price because financially it would not make
sense. When they increase their prices, their total revenues increase since patients
can’t buy any other drug, which means they control the market.