Question

Question 4 Gen-Sys is a monopoly supplier of ALZ-112, a drug bought by both private individuals and Government Agencies. The inverse demand curves are pr()-5-q for private individuals, and PG()10 - 2q for Government Agencies. For simplicity assume one private buyer and one Government agency. Gen-Sys produces ALZ-112 at a constant marginal cost of $2 per unit. We will assume there is no trade between buyers of different types 1. If Gen-Sys could perfectly discriminate between the two types of buyers what two part tariff should they charge each type to maximize profit? 2. What is the average price per unit (total price paid divided by quantity purchased) paid by each type of buyer? 3. The Government insists that it should pay the same two part tariff as the private individuals. If Gen-Sys is forced to charge the same two part tariff to both segments, what two part tarif should it set to maximize its profit? 4. Under this new scheme, does the Government pay the same average price per unit that private individuals do?

Answer 1