Problem 1 a] Red Medical Devices [RMD] is a health-care technology startup founded by Illinois Tech faculty. Its primary product is the Red Early I|Alarning System {HEWS}. This device takes the input from the numerous sensors attached to a patient and integrates the disparate sources of information to detect the likelihood of an imminent cardiac event and alerts caregivers. Fil'v'lD sells REWS to hospitals, doctors and home health care providers; it has numerous patenE which insulate it from competition. A REWS unit costs $100 to manufacture. A student team estimated the demand for REWS to roughly approximate the function P=$j_i , and 500T recommended that REWS be priced at $300 per unit. [i] Check the work of the student team. Is HEWS priced correctly? Explain. [ii] Part of the 5100 cost of production for HMD is a $20 per unit royalty that is paid to the Illinois Tech Computer Science faculty member who wrote the algorithm within the REWS unit, which processes the data and provides the alert. RMD hasjust met with the faculty for a renewal of her annual contract, and the faculty has offered to accept an annual royalty of $2 million instead of $20 per unit. Should HMD choose the fixed $2 million for its contract with the faculty member? If it does so, should it change its price? Explain. b] Young artist Edgar is the monopoly producer of paintings depicting dancers. For him, the marginal cost of producing one such painting is $1,000. He sells the paintings at $3,000 each. A friend estimated the elasticity of demand for Edgar's paintings and found it to be -2. [i] Should Edgar increase the price, decrease it, or keep it the same? Explain loriefly. c] As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. l|"ou then conducted a study that revealed two different demand curves at your movie theaters. [in weekends, the inverse demand function is P = 20 0.0010, on weekdays, it is P = 15 0.0020. "r'ou acquire legal rights from movie producers to show their films at a cost of $25,000 per movie, plus a $2.50 "royalty\" for each moviegoer entering your theaters {the average moviegoer in you r market watches a movie only once}. Devise a pricing strategy to maximize your firm's profits [assume you are allowed to charge different prices on weekdays and on weekends]