Part 'I The Minister of Transport released its Festive season road accident statistics which shows that the probability of drivers committing an accident is 3% with utility ME) = J1? , where H stands for year income. The Minister further claims these Festive season road accidents cost the state (in terms of ctaims lodged} an average of R84 000 per annum. The Road Accident Fund is an insurance scheme providing compulsory indemnity cover to victims of vehicle accidents and taxi drivers. {a} Suppose that an average commuter earns R34 000 per annum. What is the expected utility of each commuter if the driver decides not to take insurance. [10] {b} What is the cost of insurance policy to the Road Accident Fund? [2] {c} Due to high accident rates in South Africa during the Festive season, the Road Accident Fund has issued a warning to government that the fund will be insolvent soon. Advise the Minister on the cost of insurance that can collapse the scheme. [6] Part 2 Two dairy farmers produce milk for a local town with local miik demand given by Q = 100 EP {P denotes price measured in Rands. 0 denotes the quantity measured in liters). Both farmers have the same cost function given by TC 2 150 + Zq (where q denotes output). (a) Determine the reaction function of each farmer. [B] {b} Find the CoumotNash equilibrium. [2] {c} Calculate prots for each farmer [2] {d} Suppose that both farmers decide to form a cartel. determine prots for each farmer under the cartel [6] {e} What output should farmer 1 produce it hefshe expects their rival to produce 20 units? [4] (f) Calculate the prots if farmer 2 decides to break the cartel agreement [4] {g} Does joining a cartel offer any benets to both farmers? Justify your answer [4] {h} What if farmer 1 is a leader and farmer 2 a follower, determine the price, quantity and prots made by these two farmers. [B] Part 3 A pharmaceutical company Eureka Bio has discovered a Corona vaccine that can be produced at constant marginal cost of R10. The company has entered into offtake dosage agreements with Country A and B. Country A has a dosage demand of QA = 200 P,.. and Country B has dosage demand Q3 = 160 PB. {a} Suppose that Country A has high infection rates, determine the price that Eureka Bio can charge Country A and B to prevent a resale between countries. [2] {b} If Eureka Bio is the only pharmaceutical company that was successful in developing vaccines, determine the dosage that will be sold to both Countries. What will be Eureka's prot? [5] (c) If World Health Organization introduces a regulation on the price of dosages, calculate the price, prots and dosages that Eureka can charge. [5]
