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The Grand Lab has miraculously found a vaccine for the Covid-19 virus. The demand for the vaccine can be divided by high- and low-income groups with the following demand functions: High-income group: QH = 140-20PH Low-income group: QL = 220-40PL where QH is measured in the unit of millions of vaccines demanded by high-income groups at price PH, and QL is the number of vaccines demanded by low-income groups at price PL. Prices in both income groups are measured in USD. The cost of producing the vaccine if given by the following cost function C(QH, QL)= Qh + Q_- a. If the laboratory charges a single price, P7, to everybody, how many vaccines would be sold and to what price? How much profit would the Grand Lab make? b. How many vaccines would be sold to the high- and low-income groups respectively?

The Grand Lab has miraculously found a vaccine for the Covid-19 virus. The demand for the vaccine can be divided by high- and low-income groups with the following demand functions: High-income group: QH = 140-20PH Low-income group: QL = 220-40PL where QH is measured in the unit of millions of vaccines demanded by high-income groups at price PH, and QL is the number of vaccines demanded by low-income groups at price PL. Prices in both income groups are measured in USD. The cost of producing the vaccine if given by the following cost function C(QH, QL)= Qh + Q_- a. If the laboratory charges a single price, P7, to everybody, how many vaccines would be sold and to what price? How much profit would the Grand Lab make? b. How many vaccines would be sold to the high- and low-income groups respectively?

Microeconomics: Private and Public Choice (MindTap Course List)
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter7: Consumer Choice And Elasticity
Section: Chapter Questions
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The Grand Lab has miraculously found a vaccine for the Covid-19 virus. The demand for the vaccine can be divided by high- and low-income groups with the following demand functions: High-income group: QH = 140-20PH Low-income group: QL = 220-40PL where QH is measured in the unit of millions of vaccines demanded by high-income groups at price PH, and QL is the number of vaccines demanded by low-income groups at price PL. Prices in both income groups are measured in USD. The cost of producing the vaccine if given by the following cost function C(QH, QL)= Qh + QL. a. If the laboratory charges a single price, P7, to everybody, how many vaccines would be sold and to what price? How much profit would the Grand Lab make? b. How many vaccines would be sold to the high- and low-income groups respectively? c. Explain why the outcome above is inefficient and measure the inefficiency. d. Suppose that the Grand Lab could accurately separate the low-income from the high-income group. Then the Grand Lab would increase its profit by charging low- and high-income groups different prices. What would be the quantity sold to each group and what would be the prices charged to each group? How much profit would the Grand Lab make?
Transcribed Image Text:The Grand Lab has miraculously found a vaccine for the Covid-19 virus. The demand for the vaccine can be divided by high- and low-income groups with the following demand functions: High-income group: QH = 140-20PH Low-income group: QL = 220-40PL where QH is measured in the unit of millions of vaccines demanded by high-income groups at price PH, and QL is the number of vaccines demanded by low-income groups at price PL. Prices in both income groups are measured in USD. The cost of producing the vaccine if given by the following cost function C(QH, QL)= Qh + QL. a. If the laboratory charges a single price, P7, to everybody, how many vaccines would be sold and to what price? How much profit would the Grand Lab make? b. How many vaccines would be sold to the high- and low-income groups respectively? c. Explain why the outcome above is inefficient and measure the inefficiency. d. Suppose that the Grand Lab could accurately separate the low-income from the high-income group. Then the Grand Lab would increase its profit by charging low- and high-income groups different prices. What would be the quantity sold to each group and what would be the prices charged to each group? How much profit would the Grand Lab make?
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