Questions 1 through 6 will ask you to consider the market for antibiotics. On November 23, 2022, the New York Times published a story titled "Flu and R.S.V. Hit the Holidays, Heightening Demand for Antibiotics and Antivirals". You do not have to read the story to understand the setup of these questions. Please, carefully read each question to understand when these changes are introduced into the initial scenario. Here is what you should focus on to complete your analysis. For this analysis, assume the antibiotic market is perfectly competitive, demand is downward-sloping, supply is upward-sloping, and production technology results in traditional U-shaped MC, ATC, and AVC Finally, for all questions, assume market price is always greater than the minimum of the AVC You will be using the same graph in all questions that require a graph (Questions 1, 3, and 5), with each question asking you to add new elements to the graph as part of your analysis.

Question 1

Assume that prior to the Fall 2022 outbreak of respiratory illnesses, Covid, influenza, and respiratory syncytial virus (RSV), the antibiotics market was in Long Run Equilibrium (LRE).

• Using our side-by-side graph methodology (with market on the left and individual firm on the right), graphically depict the market equilibrium P₀ and Q₀, the optimal output of an individual firm representative of the other firms in the industry at this LRE (labeled as q₀), and the individual firm's profit ₀, if any (shaded and clearly labeled).
• Reminder: Be sure to label all relevant points and axes.

Question 2

Please refer to your graph in Question 1. Provide a brief narrative explaining the conditions that must be satisfied, including the profitability of an individual firm, in a perfectly competitive industry's LRE. Explain what the representative firm's economic profit is in this state and how it is achieved.

Question 3

Now analyze the impact of the outbreak of respiratory illnesses on the market for antibiotics. What health care experts are calling the "tripledemic" (Covid, flu, and RSV) has dramatically increased demand for antibiotics in the United States. Assume there are no changes to the supply of these drugs.

• On the same graph you produced in Question 1, graphically depict any changes affecting the market for antibiotics and any changes that impact the individual firm.
• Show the movements of the curves (if any) and the new Short Run Equilibrium (SRE).
• Indicate the new market equilibrium P₁ and Q₁, the optimal output of an individual firm representative of the other firms in the industry at this SRE (labeled as q₁), and the individual firm's profit ₁, if any (shaded and clearly labeled).
• Reminder: be sure to label all relevant points and axes.

Question 4

Please refer to your graph in Question 3. Provide a brief narrative explaining the movements and the resulting change in an individual firm's profit, if any. Please make sure you address the changes in the market equilibrium quantity Q, market price P, and the individual firm's profit-maximizing quantity q, if any.

Question 5

Assume the antibiotics market continues to experience the short-run demand disruption that you modeled in Question 3. However, pharmaceutical companies in the U.S. have been making planning decisions in the past few weeks and many are entering the antibiotic product markets. Analyze the impact of this change on the market for antibiotics.

• On the same graph you produced in Questions 3, graphically depict any changes affecting the market for antibiotics. Assume that the market will move to a new Long Run Equilibrium (LRE).
• Indicate the new market equilibrium P₂ and Q₂, the optimal output of an individual firm representative of the other firms in the industry at this LRE (labeled as q₂), and the individual firm's profit ₂, if any (shaded and clearly labeled).
• Reminder: be sure to mark all relevant points and axes.

Question 6

Please refer to your graph in Question 5. Provide a brief narrative explaining the movements and the resulting change in an individual firm's profit, if any. Please make sure you address the changes in the market equilibrium quantity Q, market price P, and the individual firm's profit maximizing quantity q, if any.