ECO401 Assignment No 1 Solution Spring 2022

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Note: Last Date is June 03, 2022. Grace day of 24 hours should be given for submission of assignment.

Case:
BigPharma is one of the leading industries providing medicines in all over the world. This industry spends a massive amount on research and development in the field of medicine. Revenue of this industry was estimated at 610 Billion Dollars in 2021. Most of the drugs of BigPharma are patented. Recently BigPharma introduced the ViraBloc drug which is very effective for the new Corona-Virus variant theta. The industry has decided not to patent this drug. This act will be useful for the consumers. The international federation of Pharmaceutical Manufacturers & Associations (IFPMA), also known as trade association for the innovative biopharmaceutical industry, assured that by the end of 2022, enough vaccinations would be available to immunize everyone. They predicted that supply would likely to exceed demand.

Suppose Demand function of this industry is given as below:

Qd = 75 – 20p + 2P^2
Requirements:

Calculate price elasticity of demand when price is 4 Dollars. Also, interpret the result.
Calculate total revenue of the industry by using above information in part (a)?
If price elasticity of demand of ViraBloc becomes – 15/14 then how this will affect the price of ViraBloc?

Answer:

Part 1:

Calculate price elasticity of demand =?

Price = 4 Dollars

Quantity Demand = Qd

Qd = 75 – 20p + 2P^2

Qd = 75 – 20 (4) + 2 (4) ^2

Qd = 75 – 80 + 32

Qd = 27

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Part 2:

Calculate total Revenue =?

Total Revenue = π

Which is equal to π = P x Q

= 4 x 27 = 108

Part 3:
Effect of price of ViraBloc =?

Price Elasticity = - 15 / 14= - 1.071….

Elasticity is -1.071… it is greater than 1 (ignore minus sign) which shows that the demand curve is elastic. Elastic demand defines when price of product increases, its demand decreases more than the increase in price. As price increases total revenue decreases in case of elastic demand.

ECO401 Assignment No 1 Solution Spring 2022

Answer:

ECO401 Assignment 1 Solution Spring 2022 in PDF

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