Several years ago, Pfizer and Warner-Lambert agreed to a $90 billion merger, thus creating one of the world’s largest pharmaceutical companies. Pharmaceutical companies tend to spend greater percentage of sales on R&D activities than other industries. The government encourages these R&D activities by granting companies patents for drugs approved by the Federal Drug Administration. For instance, Pfizer-Warner-Lambert spent large sums of money developing its popular cholesterol-lowering drug, Lipitor, which is currently protected under patent. Lipitor sells for about $3 per pill. Calculate the Learner index if the marginal cost of producing Lipitor is $0.30 per pill. Does the Lerner index make sense in this situation? Explain?
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