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AaBbCcDdEe AaBbCcDdEe AaBbCcDd AaBbCcDdEE AaBb AaBbCcDdEE AaBb U V abe X2 X2 A L A . Normal No Spacing Heading 1 Heading 2 Title Subtitle Subt up-to-date with security updates, fixes, and improvements, choose Check for Updates. D. [OxyContin marketing] Perdue Pharma has a monop- oly on the pain medication called OxyContin, a 1995 1. Find the monopoly quantities, prices, and profits in formulation of a drug, oxycodone, first invented in 1916 this market. as a substitute for the use of heroin as a pain killer. The new formulation was a success because it is a long- 2. Drug pushers were often the intermediaries between lasting and effective source of pain relief for serious pain. And because production costs are so low, on the order the pharmacies and the addicts, and they were the of 30 cents per 12 hour dose. The slow release/long- ones who wanted to enforce the monopoly price. Given lasting aspect also meant that people could reduce the pills to powder and take a full 12 hour dose all at once, that Perdue Pharma was not receiving the monopoly providing an intense and tremendously pleasurable high. price, what were their profit incentives vis-a-vis com- What is particularly informative about Perdue Pharma, privately held company, is how it chose the states in petition between drug pushers? the U.S. for aggressive marketing. They did it on the basis of their regulatory structure. 3. Explain, using simple monotone comparative statics, In states where prescribers of Schedule II opiods, such why Perdue Pharma marketed aggressively in states as oxycodone, needed to file three copies of each pre- scription, one for themselves, one for the pharmacy, and without triplicate prescription programs, and did not one for the state agency tasked with keeping track of do so in states that had such programs. these dangers, Perdue Pharma did not market aggres- sively. In the states without these triplicate prescrip 4. The basic economic principle in finding the optimal tion programs, the company called and visited doctors,1 paying for their vacations and meals e.g. at medical con- level of deterrence is that people taking an action ferences, in resort locations, conferences often about the should internalize the damages that they cause. For "undertreatment" of pain, and funding pain treatment groups that lobby for the liberalization of the rules for the prescription of opiods. an action a 2 0, let B(a) denote the decision maker's The basic statistic is that, over the last 20 years, U.S. benefit, D(a) the external damages caused with D'(a) > deaths from opiods have gone from roughly 8,000/year to over 46,000/ year (2018 is the last year of data that I 0, p the probability of being fined F(a) with F(a) > could find). And there are extensive subsidiary damages 0. There are three problems to consider, to the population, all of them predictable and predicted. This problem takes you through an intermediate micro . maxazo B(a), analysis of some of the evils involved. . maxazo[B(a) - D(a)], and We normalize the size of the population of people in a . maxazo[B(a) - PF(a)]. state that need extensive pain relief to 1 and normalize What are the relations between the first and the sec- the price of the drug so that the demand function is given by p(q) = 1 - q. Given how cheap the drug is to ond problem? The first and the third? What must produce, we will simplify the analysis, and suppose that be true for the second and third to have the same the average and the marginal cost are 0. solution? How does this change if p decreases ? To increase profits, Perdue Pharma wanted more ad- dicts and a more additive product, pushing the demand curve out to p(q) = (qs) - sq. The horizontal intercept, q > 1, measures the size of the addicted population in relation to the population needing pain relief, and the slope, s > 1, measures the extent to which the new formulation is more addictive. 0 Words English (US ) E Focus
