Question

Suppose a company has invented and patented a new effective drug to treat hay fever. The marginal cost of producing the drug is: MC=$4. Without being covered in any insurance plan, the market demand is as follows:

Qd=800-40P

a) Suppose the drug is covered by a public health insurance plan with a co-insurance rate of 20% and everyone is eligible. What is the market demand under this insurance policy? What price should the company charge and what is the equilibrium quantity?

b) Suppose now the public health insurer introduces the payment limit of S7.5 per unit of thedrug; that is, the co-insurance rate of 25% applies if P s $10 but the insurance only paysS7.5 per unit if P > $10. Derive the new market demand. Under this new market demand,what price should the firm charge? Justify your answer,

only answer part - B pls

Answer 1

Answer:

Answer of b) part

The price charged by firm should be $35 as it is a fair price.

Explanation:

Answer 2

limit of 7.5 per unit of the drug its with 25%=289.8

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