ECO401 Assignment 1 Spring 2022
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Kindly must read instructions 1 time and follow other wise your marks will be deducted
Due Date: June 03, 2022 Marks: 10
The Case:
BigPharma is one of the leading industry providing medicines in all over the world. This industry spends a massive amount on research and development in the field of medicine. Revenue of this industry was estimated at 610 billion Dollars in 2021. Most of the drugs of BigPharma are patented. Recently BigPharma introduced the ViraBloc drug which is very effective for the new corona-virus variant Theta. This industry has decided not to patent this drug. This act will be useful for the consumers because in this way, more producers can produce this drug which will be good for consumers. The International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), also known as trade association for the innovative biopharmaceutical industry, assured that by the end of 2022, enough vaccinations would be available to immunize everyone. The predicted that supply would likely to exceed demand.
Suppose Demand function of this industry is given as follows:
Qd=75-20P+2P2
Where ‘P’ is the price in dollars and ‘Qd’ is quantity demanded.
Requirements:
Calculate price elasticity of demand when price is 4 dollars. Also, interpret the result.
Calculate total revenue of the industry by using above information in part (a).
If price elasticity of demand of ViraBloc becomes -15/14 then how this will affect the price of ViraBloc?
Solution
Qd=75-20P+2P2
𝑃 = 4 (𝑃𝑟𝑖𝑐𝑒 𝑖𝑛 𝑑𝑜𝑙𝑙𝑒𝑟 )𝑑 (𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑)
Calculate price elasticity of demand when price is 4 dollars. Also, interpret the result.
𝑃𝑢𝑡𝑡𝑖𝑛𝑔 𝑃 𝑉𝑎𝑙𝑢𝑒 𝑖𝑛 𝐸𝑞𝑢𝑎𝑡𝑖𝑜𝑛 𝑛𝑜𝑤.
𝑄𝑑 = 75 − 20(4) + 2(4) 2
𝑄𝑑 = 75 − 80 + 32
𝑄𝑑 = 27
Calculate total revenue of the industry by using above information in part (a).
𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝜋
𝑤ℎ𝑖𝑐ℎ 𝑖𝑠 𝑒𝑞𝑢𝑎𝑙 𝑡𝑜 𝜋 = 𝑃 × 𝑄
= 4 × 27
= 108
If price elasticity of demand of ViraBloc becomes -15/14 then how this will affect the price of ViraBloc?
D𝑒𝑚𝑎𝑛𝑑 𝑜𝑓 𝑉𝑖𝑟𝑎𝐵𝑙𝑜𝑐 𝑏𝑒𝑐𝑜𝑚𝑒 – 15/14 𝑑𝑖𝑣𝑖𝑑𝑒 𝑏𝑜𝑡ℎ 𝑤ℎ𝑖𝑐ℎ 𝑖𝑠 𝑒𝑞𝑢𝑎𝑙 𝑡𝑜 − 1.0714
As we know that when the answer lie in center it's called unitary if the answer is going in positive its called Elastic if the answer is less than one mean in minus its mean it's going in negative it's called in elastic. So the nature of the Virabloc is in elastic and in elastics the Increase the price as much as you like, quantity demanded almost the same.
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