Assume that a technology firm, operating in a perfectly competitive market structure, produces easy to use home computers. The company has fixed costs of $90. The marginal costs of producing computers is $200 for the first computer, $150 for the second computer, $160 for the third, $170 for the fourth, $180 for the fifth, $190 for the sixth, and $200 for the seventh.Complete the chart below:

Q	Fixed Costs	Variable Costs	Total Costs	AVC	ATC	MC
0				X	X	X
1
2
3
4
5
6
7

At what price is the break-even point. Explain how you found the break even point based on the values above.

At what price is the shutdown point. Explain how you found the shut down point based on the values above.

Assume the market price is $200. Please state whether the company is making a profit or a loss. What is the total economic profit or loss?

Draw a graph with the MR, MC, and ATC curves to illustrate your answer to Part (D).

Over the last decade prices in the US for insulin has more than tripled Links to an external site., and is more than ten times the average price Links to an external site.in other countries. More than 37 million people Links to an external site.in the US have diabetes and many rely on the biologic medication Links to an external site.to stay alive. Patients with private insurance generally dont pay the full list price as drug companies negotiate discounts with insurers to win their business, and patients usually pay part of the price as a co-pay or deductible. However, the uninsured (who usually have lower incomes) and even some with insurance can end up paying several thousand dollars per year Links to an external site.for their medication. These high prices have led many patients to make life-or-death decisions over whether to buy their insulin or pay their other bills.

In order to combat these high prices, the US House of Representatives recently passed a bill to cap insulin prices at $35 for a one-month supply. However, as part of President Bidens Build Back Better plan, it is unlikely to pass in the Senate. As another alternative, the non-profit organization Civica Rx announced Links to an external site.that they will begin manufacturing affordable insulin. The organization plans to sell a monthly supply in vials for $30 and injector pens for $55. The company is currently building a manufacturing plant in Virginia and plans to begin manufacturing in 2024, provided it also wins FDA approval. FDA approval has been the biggest hurdle preventing companies from offering a generic alternative to compete with the big pharmaceutical companies. If Civica Rx is successful, this will introduce more competition in the market and bring the price of insulin in the US closer to its production cost and in line with the rest of the world.

A. What type of market structure do pharmaceutical companies and health insurance companies operate in? What are the characteristics that define that market structure?

B. So-called generic drugs are drugs made by competing companies after a companys patent has expired. Discuss the rationale for giving drug companies patents that allow them to charge monopoly prices for a period of time.

C. Discuss the welfare changes (consumer surplus, producer surplus, etc.) that would arise if the Congressional plan (price ceiling) is enacted, compared to if Civica Rx successfully begins manufacturing and distributing insulin (increase in supply).

D. Do you expect the price elasticity of demand to be elastic or inelastic? Explain.

3. Suppose you manage a local grocery store and you learn that a very popular national grocery chain is about to open a store in your town a few miles away.

A. Use the model of monopolistic competition to analyze the impact of this new store on the quantity of output your store should produce (Q) and the price your store should charge (P). Note, we are assuming you each sell one representative good.

B. Explain how the opening of this new store may affect your business. Be sure to address what can happen to your customers, supply and demand, and prices. What will happen to your profits? Show graphically and explain your reasoning in detail. (e.g., how and why will your profits change? How can that be seen on the graph?)

C. Explain at least one strategy that could be used to defend your market share against the new store (e.g., address what you are going to do to keep your customers).

4. Plastic waste, including carry-out containers and straws, creates multiple negative externalities. Last year, China banned the use of disposable plastic in restaurants to address its growing waste problem. Listen to the podcast below and answer the questions that follow. A transcript to the podcast can be found here

A. Use the supply and demand model to illustrate the difference between the free market equilibrium for plastic products and the socially optimal equilibrium for plastic products.

B. In addition to reducing consumption of a good or service, taxes and bans also encourage the use of substitute goods. What are some of the substitutes for plastic straws and grocery bags?

C. Discuss the difference between using taxes and regulations to reduce pollution. Which do you think might be more effective, and why?

D. Regulations sometimes lead to unintended consequences. What might be some unintended consequences of regulations aimed at reducing plastic usage?