The Cost of Researching and Developing a New Drug Are

question 10

Multiple Choice

The cost of researching and developing a new drug are fixed with respect to the number of units produced. Luna Pharmaceutical would like to sell drugs to poor countries "at cost." Suppose that Luna is subject to the fixed cost fallacy and calculates the cost of the drugs as the average cost, which includes the average fixed cost. What is a consequence of the fallacy?

• A) Luna would under-price the drugs to poor countries.
• B) Luna would over-price the drugs to poor countries.
• C) Luna should price according to the marginal cost.
• D) None of the above.