Paying to Keep a Generic Out. Suppose your firm produces a branded drug at an average cost of $2 per dose and a price of $5 per dose. You sell 1,000 doses per day. If a generic version of the drug...

Paying to Keep a Generic Out. Suppose your firm produces a branded drug at an average cost of $2 per dose and a price of $5 per dose. You sell 1,000 doses per day. If a generic version of the drug were introduced, your daily sales would decrease to 400 doses. How much are you willing to pay each day to prevent the entry of the generic version? (Related to Application 3 on page 575.)