Principles of Micoroeconomics, Student Value Edition
11th Edition
ISBN: 9780133024265
Author: Karl E. Case
Publisher: PEARSON
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Chapter 14, Problem 2P
To determine
Reason out why brand-name pharmaceutical manufacturers would want to enter into agreements using the five force model.
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Recently, Pfizer and Allergan—the makers of Viagra and Botox, respectively—initiated a $160 billion merger. Pharmaceutical companies tend to spend a greater percentage of sales on R&D activities than other industries. The government encourages these R&D activities by granting companies patents for drugs approved by the Food and Drug Administration. For instance, Allergan spent large sums of money developing its popular wrinkle-removing neurotoxin, Botox, which is currently protected under a patent. Botox sells for about $15 per vial. Calculate the Lerner index if the marginal cost of producing Botox is $1.50 per vial. Does the Lerner index make sense in this situation?
Mary and Raj are the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn $100. If they decide to work together and both lower their output, they can each earn $150. If one person lowers output and the other does not, the person who lowers output will earn $0 and the other person will capture the entire market and will earn $200. Table represents the choices available to Mary and Raj. What is the best choice for Raj if he is sure that Mary will cooperate? If Mary thinks Raj will cheat, what should Mary do and why? What is the prisoner’s dilemma result? What is the preferred choice if they could ensure cooperation? A = Work independently; B = Cooperate and Lower Output
Milly and Rob are the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn $100. If they decide to work together and both lower their output, they can each earn $150. If one person lowers output and the other does not, the person who lowers output will earn $0 and the other person will capture the entire market and will earn $200. The table represents the choices available to Milly and Rob. What is the dominant strategy for Milly ?
Milly Keeps Producing
Milly Lowers Output
Rob Keeps Producing
$100, $100
$200, $0
Rob Lowers Output
$0, $200
$150, $150
Group of answer choices
Milly should keep producing
Milly should work independently from Rob
Mily should lower output
Chapter 14 Solutions
Principles of Micoroeconomics, Student Value Edition
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