4. What are the costs and benefits of the following scenario? a.) The government implements a price control for with price greater than $10,000 must be made available for only $2,000. any drug b.) The government offers a half billion prize to the first drug company that develops a vaccine for Coronavirus. c.) The FDA reduces the patent length for drugs to treat Alzheimer's disease from 17 years to 7 years, and all current natents for such drugs that are already more than 7 vears old

4. What are the costs and benefits of the following scenario? a.) The government implements a price control for with price greater than $10,000 must be made available for only $2,000. any drug b.) The government offers a half billion prize to the first drug company that develops a vaccine for Coronavirus. c.) The FDA reduces the patent length for drugs to treat Alzheimer's disease from 17 years to 7 years, and all current natents for such drugs that are already more than 7 vears old

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 4PA

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3.4. EZjoint. After spending 10 years and $1.5 billion, you have finally gotten Food and Drug Administration (FDA) approval to sell your new patented wonder drug, which reduces the aches and pains associated with aging joints. You will market this drug under the brand name of EZjoint. Market research indicates that the demand elasticity for EZjoint is 21.25 (at all points on the demand curve). You estimate the marginal cost of manufacturing and selling one more dose of EZjoint is $1. (a) What is the profit-maximizing price per dose of EZjoint? (b) WouldyouexpecttheelasticityofdemandyoufaceforEZjointtoriseorfall when your patent expires? Suppose that, after patent expiry, a generic version of EZjoint was introduced in the market (under the chemical name clorophospartane). Reacting to entry, EZjoint decided to increase price. (c) Can this behavior be consistent with rational profit maximizing? (Cabral, 20170224)
1.) Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person’s health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person? a. 6. b. 2. c. 0. d. 14. 2). Reconsider again the previous health insurance question. Suppose that due to some innovations in technology as well as increased efforts to shorten/streamline patient reports as doctors look for ways to…
3. The Placebo Drug Company holds a patent on one of its discoveries. (a) Assuming that the production of the drug involves rising marginal cost, draw a diagram to illustrate Placebo’s profit-maximizing price and quantity. Also, show Placebo’s profits.(b) Now suppose that the government imposes a tax on each bottle of the drug produced. On a new diagram, illustrate Placebo’s new price and quantity. How does each compare to your answer in part (a)?(c) Although it is not easy to see in your diagrams, the tax reduces Placebo’s profit. Explain why this must be true.(d) Instead of the tax per bottle, suppose that the government imposes a tax on Placebo of ¿110 000 regardless of how many bottles are produced. How does this tax affect Placebo’s price, quantity, and profits? Explain.
21. Which of the following most accurately completes the statement? If drugs such as marijuana and cocaine were legalized, it would be likely that Question 21 options: a) there would be an increase in the frequency of tainted and poor quality versions of these drugs that severely harm users. b) their prices would increase and quality would decline as innovation would cease in drug production. c) there would be more violence occurring in transactions involving these substances as producers fight for expanded customers. d) their prices would decrease, quality reliability would improve, and there would be less violence occurring in transactions. 24. Both price floors and price ceilings lead to Question 24 options: a) a reduction in the quantity traded. b) improvements in market efficiency. c)…
1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors. (a) Explain why the public supply curves differ from the private supply curves, and how this represents the externality from second-hand smoke. Highlight the area(s) of your diagram that represents a social loss. (b) Calculate the social loss for both. (c) Suppose the government decides to pursue a Pigouvian solution to eliminate social loss. What's amount of tax or subsidy would the government…
1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors. (a) Plot the private demand curve and private supply curve for both cigarettes on separate axes. (b) What is the privately efficient quantity demand of both cigarettes? (c) Add the public supply curves to the graphs you plot in (a). (d) What is the socially efficient quantity demand of both cigarettes?
(A) Suppose that the two firms merge. Write down the profit function of the merged firm. Calculate the profit maximizing level of output, the amount of pollution for the merged firm, and its profit. Is the merger Pareto improvement? Why or why not? (B) Suppose that the merger is forbidden by the government. Instead, now the fishery has the property right to water. In other words, anybody who wants to pollute the water needs to buy a pollution right from the fishery. Let the price of the pollution right be Px. Write down the steel mill’s new profit function and the fishery’s new profit function. (C) Calculate the profit maximizing level of output for each firm, the amount of pollution, and the price of pollution right. please, please answer the three questions together..
12 Demand elasticity and social loss. Consider two vaccines for difffferent viruses χ and Ω Assume that the marginal cost of producing both drugs is constant and that the fixed cost is small. In other words, assume that the supply curve for both drugs is flat. a Suppose that demand for vaccine χ is price elastic, whereas demand for vaccine Ω is relatively inelastic. Plot the private demand curve for both drugs on separate axes. b For the sake of example, assume that both viruses have the same externality. Plot the social demand curve for both drugs and label the social loss in each case. c Explain intuitively why, all else equal, social loss is greater in the case of elastic demand than it is in the case of inelastic demand.
Consider the case of innovating vaccines without patents (in a perfectly competitive market) (a) Does an externality exist? If so, is it positive/negative (or both) (b) Use Coase’s framework to identify the cause of the externality (c) If an externality exists, determine whether the Coase theorem applies (i.e. is it feasible to assign property rights and solve the problem?) (d) If an externality exists and the Coase theorem does not apply, discuss a government/institutional solution that can mitigate the problem of externality
9 ECONOMICS OF ILLICIT DRUGS In reference to the optimal level of drug consumption, explain how the Pigou taxation solution works. (Hint: externality model)
1. The problem with regulating a natural monopoly at marginal cost pricing is that regulations are generally impossible to enforce. the cost of regulation outweighs any potential benefits. regulating a market causes more deadweight loss. the monopolist firm will lose money and want to shut down. 2. Suppose an oil refinery produces air pollution that negatively affects the surrounding residents. Which of the following is not a policy the government could take to correct this externality? -Subsidize the refinery’s product. -Require the refinery to pay for and install scrubbers so that no pollution is released. -Estimate the damages caused by the pollution and force the refinery to pay that amount. -Enact an excise tax on the refinery’s product.
q 49. You are the manager of a gas station and your goal is to maximize profits. Based on your past experience, the elasticity of demand by Texans for a car wash is −8, while the elasticity of demand by non-Texans for a car wash is −3. If you charge Texans $16 for a car wash, how much should you charge a driver with Oklahoma license plates for a car wash? a. $18 b. $15 c. $21 d. $15