Economics Cost and Benefit analysis 1. (10 marks) An immunization project will use a small quantity of a vaccine to immunize children ina remote region of a country against a disease common there, but

Economics Cost and Benefit analysis 1. (10 marks) An immunization project will use a small quantity of a vaccine to immunize children ina remote region of a country against a disease common there, but

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Economics Cost and Benefit analysis 1.

Economics Cost and Benefit analysis

1. (10 marks) An immunization project will use a small quantity of a vaccine to immunize children ina remote region of a country against a disease common there, but not elsewhere. Explain what costshould be attached to each dose of the vaccine and how this would compare to the purchase price paidby the agency doing the vaccinations if:
(a) The vaccine is produced and sold by a domestic monopolist for a price of $25/dose and themarginal cost of production is estimated to be $16/dose. Production of the vaccine produceswater pollution (an external cost) that does an average of $4 worth of damage per dose of vaccineproduced. The pollution only affects people that live close to the production plant.
(b) The vaccine is imported from a competitive foreign market where it sells for $12/dose. Productionof the vaccine produces water pollution (an external cost) that does an average of $4 worth ofdamage per dose of vaccine produced. The pollution only affects people that live close to theproduction plant. The cost of shipping the vaccine is $2 per dose. The vaccine is imported by adomestic firm that has the sole rights to import the vaccine. This firm buys the vaccine at cost and sells it for $20 per dose.
(c) The vaccine is imported from a competitive foreign market where it sells for $12/dose. Productionof the vaccine produces water pollution (and external cost) that does an average of $4 worth ofdamage per dose of vaccine produced. The pollution only affects people that live close to theproduction plant. The cost of shipping the vaccine is $2 per dose. Each dose that is imported is subject to a $8/dose import tariff levied by the federal government as part of a program to protect domestic pharmaceutical manufacturers.

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