PART III: BERTRAND COMPETITION IN THE MARKET FOR VACCINES In the midst of a pandemic, the US administration is looking for ways to assist pharmaceutical companies to develop and roll out a vaccine as quickly as possible and at a scale large enough to protect the entire US population (approx. 300 M peOple). After preliminary analysis, the Centers for Disease Control and Prevention (CDC) has determined that the demand for vaccines is given by the following demand curve, where Q is million of doses: Q P=2 0 40 There are two potential producers for the vaccine, Pzer-BioNTech (N) and Moderna (M), each with a constant marginal cost of $2 per vaccine produced. 1. In the absence of any government intervention (tie. no government purchasing) and in the event that both vaccines are approved by the CDC, Pzer-BioNTech and Moderna would be competing a la Bertrand. Find the equilibrium price for the vaccine and how many doses would be produced. Would this be enough to vaccinate each person twice? 2. Suppose we are prior to the R&D phase for the vaccine. The cost of developing the vaccine is $1 billion for Pzer-BioNTech and $1.2 billion for Moderna. Given your answer to the last question, would they be willing to deve10p the vaccine? Note: Here, you want to c0mpute prots in the rst question and see whether they would be enough to cover the cost of R&D. 3. Unwilling to accept the fate that economics decides for the rest of the country, a senior ofcial at the CDC suggests at a meeting to only give approval to Pzer-BioNTech to enter the market. Pzer- BioNTech would be reSponsible for their own costs of R&D but would be given the right to charge the monOpoly price for their vaccine. What would be the price and quantity produced in this setting? How much of the pOpulation could be vaccinated? Would the prot of Pzer-BioNTech be enough for them to enter? Assume the same innovation costs from Question 2 still apply. 4. At this same meeting, the mood is low and ofcials cannot think of another alternative but to fully cover the R&D cost for both Pzer-BioNTech and Moderna. In return, they consider implementing a tax of $3 per vaccine (effectively raising the MC to $5 for both companies) and letting them compete a la Bertrand. What would be the equilibrium price and quantity with this alternative? Could everyone be vaccinated? What would be the cost for the US taxpaper ( R&D subsidy - Tax revenue). 5. A young intern well-trained in economics remembers that another company, Johnson&Johnson, al- ready has a vaccine ready (so their R&D would effectively be $0) and would be ready to start pro- duction at a MC of $5 per vaccine. He suggests the CDC gives approval to both Pzer-BioNTech and John50n&Johns0n (J) and to give no subsidy, implement no tax, and let the two companies compete a la, Bertrand. What would be the equilibrium price in this setting? Would enough doses be produced? Is this a preferable solution for the US taxpayer