Asked by Nathan
Sorry, it's long. I've tried everything to solve this, I have no clue how they got any of the MR figures, I calculated MR and I got 0.5. Help please.
* A drug company currently sells 3 million AIDS treatments in rich countries at P = $80 per treatment.
* In order to sell 6 million AIDS treatments in poor countries the drug company would have to lower price to $30 per treatment.
* Marginal cost is constant and equal to $10 per treatment in both countries.
* If the drug company cannot prevent re-sale between rich and poor countries then the marginal revenue per treatment of increasing output from 3 million (serve rich only) to 9 million (serve both rich and poor) is equal to___
a. $30 per treatment which is greater than the marginal cost of $10 per treatment and thus implies that profits will rise if the poor buyers are served.
b. $5 per treatment which is less than the marginal cost of $10 per treatment and thus implies that profits will fall if the poor buyers are served.
c. $30 per treatment which is less than the marginal revenue of $80 per treatment received from the rich buyers and thus implies that profits will fall if the poor buyers are served.
d. $30 per treatment which is greater than zero and thus implies that profits will rise if the poor buyers are served.
e. $20 per treatment which is greater than the marginal cost of $10 per treatment and thus implies that profits will rise if the poor buyers are served.
* A drug company currently sells 3 million AIDS treatments in rich countries at P = $80 per treatment.
* In order to sell 6 million AIDS treatments in poor countries the drug company would have to lower price to $30 per treatment.
* Marginal cost is constant and equal to $10 per treatment in both countries.
* If the drug company cannot prevent re-sale between rich and poor countries then the marginal revenue per treatment of increasing output from 3 million (serve rich only) to 9 million (serve both rich and poor) is equal to___
a. $30 per treatment which is greater than the marginal cost of $10 per treatment and thus implies that profits will rise if the poor buyers are served.
b. $5 per treatment which is less than the marginal cost of $10 per treatment and thus implies that profits will fall if the poor buyers are served.
c. $30 per treatment which is less than the marginal revenue of $80 per treatment received from the rich buyers and thus implies that profits will fall if the poor buyers are served.
d. $30 per treatment which is greater than zero and thus implies that profits will rise if the poor buyers are served.
e. $20 per treatment which is greater than the marginal cost of $10 per treatment and thus implies that profits will rise if the poor buyers are served.
Answers
Answered by
economyst
Marginal revenue is also known as Price (P). So, in rich countries MR=80. If it serves the poor countries MR=30. If it serves the poor countries with a goal of 6-million treatment and since it cannot prevent re-sale, price (MR) in the rich country also drops to 30.
Now then, MC is a constant 10. If it only serves the rich country, MR=80, meaning profit per treatment is 70. At 3-million sales, total profit becomes 210-million. If it serves both rich and poor, profit per treatment drops to 20. Total profit would be 9*20 = 180-million.
While I don't like the wording, c) seems to be the only possible correct answer.
Now then, MC is a constant 10. If it only serves the rich country, MR=80, meaning profit per treatment is 70. At 3-million sales, total profit becomes 210-million. If it serves both rich and poor, profit per treatment drops to 20. Total profit would be 9*20 = 180-million.
While I don't like the wording, c) seems to be the only possible correct answer.
Answered by
Nathan
Thanks for the help. I did end up getting the answer right, miscalculated the first couple times I did it.
MR = change in TR/ change in q
change in tr= ((9mil*30)-(3mil*80)
=270mil-240mil
=30 mil
change in q= 9mil-3mil
=6mil
MR=30/6
=$5
Since 5 is less than mc, you have gone past the profit max. point and profit will fall.
So B.
MR = change in TR/ change in q
change in tr= ((9mil*30)-(3mil*80)
=270mil-240mil
=30 mil
change in q= 9mil-3mil
=6mil
MR=30/6
=$5
Since 5 is less than mc, you have gone past the profit max. point and profit will fall.
So B.
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