Solve all questions.... Pharmaceutical Benefits Managers (PBMs) are intermediaries between upstream drug manufacturers and downstream insurance companies. Theydesign formularies (lists of drugs that insurance will cover) and negotiate prices with drug companies. PBMS want a wider variety of drugs available totheir insured populations, but at low prices. Suppose that a PBM is negotiating with the makers of two nondrowsy allergy drugs, Claritin and Allegra,for inclusion on the formulary. The "value" or "surplus" created by including one nondrowsy allergy drug on the formulary is $80 million, but the valueof adding a second drug is only $24 million.Assume the PBM bargains by telling each drug company that it's going to reach an agreement with the other drug company.Under the non-strategic view of bargaining, the PBM would earn a surplus of $of Smillion.million, while each drug company would earn a surplusNow suppose the two drug companies merge. What is the likely postmerger bargaining outcome?Under the nonstrategic view of bargaining, the PBM would earn a surplus of Ssurplus of $million.million, while the merged drug company would earn a

Under the non-strategic view of bargaining, the PBM would earn a surplus of $80 million. It is…

Answered: Pharmaceutical Benefits Managers (PBMs)…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter16: Bargaining

Section: Chapter Questions

Problem 16.6IP

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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 25% 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? a. Suppose now the public health insurer introduces the payment limit of $7.5 per unit of the drug; that is, the co-insurance rate of 25% applies if P less than or equal 10 (P<= 10), but the insurance only pays $7.5 per unit if P is greater than 10 P>10). Derive the new market demand. Under this new market demand, what price should the firm charge? Justify your answer.
Pharmed Caplets is an antibiotic product with monthly revenues and Pharmed Caplets is an antibiotic product with monthly revenues and costs of:TR = $900Q – $0.1Q2 ………… TC = $36,000 + $200Q + $0.4Q2MR = ∂TR/∂Q = $900 – $0.2Q ……. MC = ∂TC/∂Q = $200 + $0.8QA. Set up a spreadsheet for output (Q), price (P), total revenue (TR), marginal revenue (MR), total cost (TC), marginal cost (MC), average cost (AC), total profit (π), and marginal profit (Mπ). Establish a range for Q from 0 to 1,000 in increments of 100 (i.e., 0, 100, 200, …, 1,000).B. Using the spreadsheet to, create a graph with MR, MC, and AC as dependent variables and units of output (Q) as the independent variable. At what price/output combination is total profit maximized? Why? At what price/output combination is average cost minimized? Why?C. Determine these profit-maximizing and average-cost minimizing price/output…
What types of tax credits, subsidies, or regulatory reforms could help pharmaceutical firms offset the short-term costs associated with supply chain diversification and technological upgrades?
Should there be one $/QALY for an entire country? How would you expect drug companies to react to price limits set by public programs?
It is generally agreed that unrestricted price competition among insurers could be detrimental to the public, yet some people argue that antirebating laws represent an unnecessary restriction on price competition among insurance agents and that such laws should be repealed. What is your opinion?
In the mid-1990s, the state of New Jersey revised its rules for the individual insurance market and began requiring that insurers charge the same premiums for the same coverage to all applicants. Assuming that insurers had previously used medical underwriting, which of the following is a predictable consequence of adverse selection? 1) Insurance becomes less attractive to the healthiest individuals, so fewer of them buy it 2) Insurers’ average costs of providing coverage increase because of a changing risk pool 3) The average age of those buying in the individual market goes up 4) All of the above
Define moral hazard.
In this simple insurance model, a company has a monopoly over a small market. There are 100K potential customers with a low risk profile, 60K potential customers with a medium risk profile, and 10K potential customers with a high risk profile. A person’s risk profile is important as it determines how much insurance is worth to the customer and how much money the customer will cost on average to the insurance company. The following table summarizes the estimates put together by the company: Low risk profile Medium risk profile High risk profile Number of potential customers 100,000 60,000 10,000 Expected expense per customer $2K $7K $15K Maximal price the customer isready to pay for insurance $3K $8K $16K Remark: Explaining where these numbers come from would require a subtler model that describes the risk covered by the insurance policy. While there is no need to do this for the purpose of this exercise, notice though how the maximal price…
How should the government decide what the optimal level of deterrence is
Gaining access to complementary technology is an advantage of licensing IPR. True False
Provide an example of Moral Hazard from personal observation or experience.
Provide an intuitive discussion of how adverse selection affects the used-car market. Describe one potential signal that can help alleviate the problem of adverse selection in this market and discuss how this signal satisfies the two necessary assumptions for it to be used as a credible signal.

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