State A and B has each confirmed 80 COVID-19 patients. The national government wants to reduce...

State A and B has each confirmed 80 COVID-19 patients. The national government wants to reduce their cases by allocating vaccines. Suppose the marginal costs associated with COVID-19 treatment are MCA =50+3QA for state A and MCB = 20 + 6QB for state B, where QA and QB are the quantities of COVID-19 recovery in each state. The country’s marginal benefit from COVID-19 control is given by MB = 620 − 3QT, where QT is the total recovery after treatment. 1) What is the socially optimal level of each state’s recovery? 2) How many total confirmed cases are there in the social optimum? 3) Suppose only the Federal government has limited vaccines, explain why it is inefficient to allocate each state an equal number of vaccines without rights for them to trade. 4) Explain how the social optimum can be achieved if states are given equal numbers of vaccines but are allowed to trade them. 5) Can the social optimum be achieved using a subsidy on treatment? If so, at what value?

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Rahul Sunny answered 1 year ago

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