2 ms·
Price is not defined by costs. You adjust prices for maximum profit, as in the k of (h,k) of a quadratic equation. If you can produce a drug for 1$ a dose and
by catlikesshrimp 5y ago
Price is not defined by costs. You adjust prices for maximum profit, as in the k of (h,k) of a quadratic equation.
If you can produce a drug for 1$ a dose and you can sell it for 100$ at most without losing customers, you do that.
If your product costs are too high, you don't advertise. You sell the drug to the government as an "orphan drug".
- Retric 5y agoPrice very much depends on cost, the goal is profit maximization not maximizing revenue. Suppose you can sell 1 million sandwiches at 5$ or 1/2 a million at 6$ which you price depends on your cost of production. If it’s costing you less than 4$ you pick the first option if it’s more than 4$ and less than 6$ you pick the second. Though in the real world costs aren’t independent of sales so it’s even more complicated. It’s only when you get extreme markups from a guaranteed monopoly that you can approximate things as revenue maximization. Also, drug R&D numbers are extremely inflated as among other things it’s got tax advantages.
- catlikesshrimp 5y agoYou got me on taxes. I totally left that out. My whole post is the exception you mention in your third paragraph. Your first paragraph is what happens when you have generics, and they start treating the drug more like a sandwich that a treatment. (No bioequivalence tests, safety concerns, etc)