Question

(e) (8 points) Calculate the Lerner Index at the profit maximizing price and quantity. (f) (16 points) What is the price elasticity at the profit maximizing price and quantity? Is it elastic, unit elastic, or inelastic?

Answer 1

Z2 MCS Marginal cost of producing at his vaccine is $160 Variable cost, 160Q · Hunce, total cost, fined cost FC = $856 VLC TC - VC+ FC =) TC= 160Q t 856 (a). Now, Crilead's anual cost faction: 856 TC 160 t ACE (b) Inunse demand fuction Pa 1000- 25Q Total reveme, TR=PQ = 1000 Q-2502 Marginal reveme, d (TR) MRE -- 1000- 25(22) da - MR- 1600- 500 e profu't maximising condition is MR = MC 100-50Q = 840= 500 2) Q = 16.8 160 =) 22 CS Scanned with CamScanner

e Learner enden at the pio fit marimising Now, we know that, maimising quantity is 16.8 mits, the pros't maimi puce will be p= 1000-250 - 1600- 25 X/6.8) $ 580 puce and quantity 160) 580-160 0.724 P-MC = 580 La p 2 p-mic TERT La P 9 Leannes in den, where | Edl= puce elasticity of demad (absolute = value). 0. 724 - 1 Ed] =) 1. Huces ledl 1.38 0.724 thee, as the absolute vahe of elasticity is greate then tice, demand i elastic at probit mainising price and quantity CS Scanned with CamScanner