Question
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
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