Assume that prior to the Fall 2022 outbreak of respiratory illnesses, Covid, influenza, and respiratory syncytial virus (RSV), the antibiotics market was in Long Run Equilibrium (LRE). Using our side-by-side graph methodology (with market on the left and individual firm on the right), graphically depict the market equilibrium P0 and Q0, the optimal output of an individual firm representative of the other firms in the industry at this LRE (labeled as q0), and the individual firm’s profit π0, if any (shaded and clearly labeled). Reminder: Be sure to label all relevant points and axes.
Prompt-
Questions 1 through 6 will ask you to consider the market for antibiotics. On November 23, 2022, the New York Times published a story titled “Flu and R.S.V. Hit the Holidays, Heightening Demand for Antibiotics and Antivirals”. You do not have to read the story to understand the setup of these questions. Please, carefully read each question to understand when these changes are introduced into the initial scenario. Here is what you should focus on to complete your analysis.
- For this analysis, assume the antibiotic market is
perfectly competitive , demand is downward-sloping, supply is upward-sloping, and production technology results in traditional U-shaped MC,ATC , andAVC - Finally, for all questions, assume market price is always greater than the minimum of the AVC
You will be using the same graph in all questions that require a graph (Questions 1, 3, and 5), with each question asking you to add new elements to the graph as part of your analysis.
QUESTION 1-
Assume that prior to the Fall 2022 outbreak of respiratory illnesses, Covid, influenza, and respiratory syncytial virus (RSV), the antibiotics market was in Long Run Equilibrium (LRE).
- Using our side-by-side graph methodology (with market on the left and individual firm on the right), graphically depict the
market equilibrium P0 and Q0, the optimal output of an individual firm representative of the other firms in the industry at this LRE (labeled as q0), and the individual firm’s profit π0, if any (shaded and clearly labeled). - Reminder: Be sure to label all relevant points and axes.
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