1.Bayer AG, makers of Bayer aspirin and other products manufactures its name brand product (Bayer), and generic aspirin under various store-brand or generic names.Assume that it sells both versions in 100 aspirin containers.The marginal cost of each container is constant at $1.25, and fixed costs are zero.Due to extensive and effective previous marketing campaigns, the Bayer brand has extensive monopoly power, whereas the generic aspirin is competitive since there are plenty of other aspirin makers competing in this homogenous good market.The economists at Bayer have found that the elasticity of demand for Bayer aspirin is reasonably constant at e_p= -2.

a.Calculate the profit maximizing price for Bayer aspirin and the generic aspirin.Also calculate the economic profit from each unit sold of each variety (i.e. what is the per unit profit of Bayer and generic aspirin?).

b.Using the language of the elasticity of demand, describe in English the form of price discrimination that Bayer AG is practicing and why the market can support each price.

c.Assume that Bayer AG currently produces 1 million bottles of 100-unit Bayer branded aspirin and 2 million bottles of 100-unit generic aspirin each month.Further assume that Bayer AG produces all aspirin at a single plant.A fire at the plant cuts potential production from 3 million units to 2.5 million units per month.Determine the profit maximizing strategy for the production of Bayer brand and generic aspirin given the new production constraint.Following your strategy, recalculate economic profits for Bayer AG.