1. (20 points) Mylan has a lock on the particular EpiPen design for delivering epinephrine for allergy attacks that millions of patients, parents, and school nurses have come to trust. The company's main innovation has been a bright orange cap that covers the needle, but releases automatically when a patient pushes an EpiPen against her thigh, so there's no need to stop and unscrew the cover in the midst of an allergy attack. The EpiPen has been dominant for so long it makes it hard for challengers to come in with a radically different design. It would not be very difcult to create an EpiPen product, in terms of engineering," a potential competitor said. "It's not rocket science. It's purely the patent that stops us. Mylan has patent protection that lasts through 2025. a. Using the following Market Demand and Cost information for Mylan, use the Structure-Conduct-Performance paradigm to analyze the industry for getting epinephrine into the body. Find, Price, Quantity and Prot P=1,040-Q MR=1,040-ZQ MC=40 b. Will Mylan advertise? Will Mylan lobby? Why or why not? c. Using following the Market Demand and cost information, use the Structure-Conduct-Performance paradigm to analyze the industry once Mylan's patent expires in 2025. Note, in a competitive industry P=MR=MC. Find Price, Quantity and Prot 3. (20 points) Suppose an opportunity arises to invest $10 million that will pay $5.5 million at the end of year 1 and $6.5 million at the end of year two. The cost of capital is 10%. C. _h a. Find NPV. Is the project a go? Show and explain b. Suppose the project's cash ows are delayed a year, but not the outlay. How does that change your answer? Show and explain Suppose there is a cost overrun of 20%. The cash ows and their timing are the same as in part a. How does this change your answer? Show and explain. . Suppose the second-year cash ow decreases to $5 million. The outlay and timing of the cash ows are the same as in part a. How does this change your answer? Show and explain. Evaluate the proposal. Would you undertake it? 4. (10 Points) Economies of Scale Suppose the cost for each rm in an industry is given by TC=500+5Q Suppose the entire market in the industry is Q=1,000. Would a rm with a 50% market share have any cost advantage over a rm with just a 20% market share? 5. (15 points) Economies of Scope a. Suppose there is a rm that produces tennis rackets (Q1)whose cost function is given by TC=100 +Q12 What are the firm's costs of making 5 tennis rackets? b. Suppose there is a rm that makes lacrosse sticks (02) using a similar method TC=100 +02? What are this rm's costs of making 4 lacrosse sticks? c. Suppose the tennis racket rm buys the lacrosse stick rm and plans to produce 5 tennis rackets and 4 lacrosse sticks and its new cost structure is given by TC=100-0.5Q102+ 012+sz Do economies of scope exist? 2. (20 points) Name-Brand Prescription Drugs Market:\"Happy Pill"that greatly improves life but is not essential to life. a. Using supply and demand analysis, explain what happens to the market price and quantity of a name-brand prescription drug Happy Pill if its patent expires. b. Using supply and demand analysis explain why Happy Pill might be advertised. c. Using supply and demand analysis, explain what would happen to the price and quantity of Happy Pills if there was a severe recession, and people lost theirjobs, which included a health-care benet that payed for prescription drugs. d. Using supply and demand analysis, explain what would happen to the price and quantity of Epi-Pens if there was a severe recession, and people lost theirjobs, which included a health-care benet that payed for prescription drugs 7. (15 points) Nadia consumes two goods, food and clothing. The price of food is $2, the price of clothing is $5. and her income is $1,000. She always spends 40% of her income on food regardless of the price of food, clothing, or her income. a. What is her price elasticity of demand for food? b. What is her cross-price elasticity of demand for food with respect to clothing? c. What is her income elasticity of demand for food