Question

$30,0 $30;positive $20, zero $20; negative Tools a 51 15 Suppose that a pharmaceutical company is able to identify which of its potential customers have health insurance. If it is able to set separate prices for the two types of customers it should charge a lower price to customers (with, without) health insurance since they will have more (elastic, inelastic) demand. without: elastic with; elastic without: inelastic with; inelastic 13 D 100 52

Answer 1

Ans) 1) Seller with market power uses price discrimination mechanism to increase its revenue. In price discrimination, it charges more price from consumers with less price elasticity while it charges less prices from those who have more price elasticity.

So, an insured consumer has more price elasticity and therefore, seller will charge lower price from consumers with health insurance.

Option b (with, elastic)

2) When government wants monopoly to produce socially optimal quantity, it forces it to charge price equal to marginal cost. But at this price, monopoly suffers loss.

Price = 20, profit = negative (loss is negative economic profit)

Colchicine z Tools - АТС OSIS 7 10 20 30 40 50 70 Quantity per year in 1000) Deman 80 90 The diagram above represents a hypothetical monopoly named Ace Pharmaceuticals that has a monopoly on the production and sale of the drug Colchicine. If the government forced the price for Colchicine to generate demand equal to the socially efficient amount, the price would be __ and Ace would have __ economic profits. $30:0 $30;positive $20; zero $20; negative