Consider a pharmaceutical laboratory with the following cost information, where Q represents the number of units...

Consider a pharmaceutical laboratory with the following cost information, where Q represents the number of units of a vaccine: Supply curve or marginal private cost curve (MPC): MPC = 2000+ 4Q.

Whenever a person gets vaccinated, they reduce the risk of suffering from infection for themselves. This is represented by the demand curve or marginal private benefit curve (MPB): MPB = 3000 –6Q.

a) Plot these on a clearly labelled diagram and calculate the equilibrium price and quantity.In addition, whenever a person gets vaccinated, this reduces the risk of others being infected as well.

Suppose the benefits created by this are captured by the following function: Marginal external benefit (MEB): MEB = 5Q.

b) Write out the marginal social benefit (MSB) function and plot this MSB curve on your diagram.

c) Calculate the socially efficient number of vaccine unitsand the marginal social benefit of this number of units and show this on your diagram.

d) Calculate and show on your diagram the deadweight loss from the equilibrium in part a) compared to the equilibrium in part c).

e) With the aid of your diagram, describe and explain two different solutions that could be used to implement the socially efficient quantity of vaccine units.

Solutions

Expert Solution

The answers are given below:

Rahul Sunny answered 1 month ago

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