Pure Price-Gouging

Danaher Corp. holds a virtual monopoly on single-use test cartridges for TB infection. An independent analysis says the cost of a cartridge ranges from $3 to $4.50, but Danaher charges a price between $10 and $15, a markup of up to 400 percent. It’s pure price gouging.—cbc.ca

Answer the following questions to check your understanding of the story.

Is Danaher practicing price gouging?

a) Danaher is providing an efficient quantity of test cartridges and the cartridges are being allocated by market price.

b) TB tests should be available for free.

c) To charge a price higher than cost is exploiting vulnerable, low-income people.

d) Danaher is maximizing profit by setting marginal cost equal to marginal revenue and charging the highest price people are willing to pay.

If the cost of a cartridge is $3 and the price of a cartridge is $15, what is Danaher’s markup?

Danaher’s markup is _____________.

a) $12 per cartridge, the difference between marginal cost of $3 and price of $15

b) $12 per cartridge, the difference between marginal cost of $3 and marginal revenue of $15

c) $12 per cartridge, the difference between average total cost of $3 and price of $15

d) $15 per cartridge, which is equal to the firm’s marginal benefit from a cartridge

Pure Price-Gouging

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