Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose that the pharmaceutical company Divoc won the race to find a vaccine for Covid-19, and the Food and Drug Administration (FDA) has approved it.

Suppose that the pharmaceutical company Divoc won the race to find a vaccine for Covid-19, and the Food and Drug Administration (FDA) has approved it. So far, Divoc's vaccine is the only one with FDA approval. In its terms of sale, Divoc is careful make sure that pharmacies, its customers, cannot resell the vaccine.

Divoc's market research reveals that its customer base is made up of 1,000 pharmacies located in higher disease risk areas (H) and 1,000 pharmacies located in low risk areas (L).Each pharmacyof type H has monthly demand

p_H = 260 - q_H

each pharmacyof type L has monthly demand

p_L = 110 - 2q_L

Divoc's cost of production is

c(q) = 30q

Divoc's extensive market research also makes it possible to tell what type of pharmacy it is selling to, and tailor its price accordingly.

A) Suppose that Divoc sets a per-unit (linear) price, which can be different for each type of pharmacy. What is the profit maximizingtotalquantity of vaccines Divoc is expected to sell?

B) What is Divoc'stotalmonthly profit?

C) What is the total surplus (welfare) in this market?

D) As Divoc's pricing manager, you soon learn that a non-linear price such as a two-part tariff can generate even more profit. If Divoc implemented such a pricing rule, maximizing its profit, how many units of the vaccine would you expect Divoc to sell? (Hint: Divoc can still tell which type of pharmacy it is selling to.)

E) What is Divoc's profit under this new scheme?

F) How would the total surplus change as compared to that under per-unit (linear) pricing?

Please answer all parts of the question please and thank you

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Econometric Analysis

Authors: William H. Greene

5th Edition

130661899, 978-0130661890

More Books

Students also viewed these Economics questions

Question

When jones becomes ceo next month, well need your input asap.

Answered: 1 week ago