BLAW1002 - Economics Principles Analysis (EPA) Assignment

Assignment Task

Context and Overview

Assessment 2’ is called the Economics Principles Analysis (EPA) and is worth of the final mark. This EPA assesses the Economics Topics E1 (Module 6) and E2 (Module 7). It is a ‘take-home’ activity, consisting of a set of tasks to do in short-written answers. You will have up to seventeen (17) days to complete the EPA on your own.

Part

1. Demand for Pepsi Consider the price-setting power of firms in a unique time in history, post-pandemic amidst an outbreak of high inflation (2022 to mid-2023), followed by a steady period of relatively moderate inflation in recent months. We shall focus on the beverage giant, PepsiCo. To give you some relevant knowledge and guidance for this task, read the following freely available articles:

2. Profitability of Firms in the Weight-Loss Industry

a. Obesity is a major social problem in some modern economies, and it can be a struggle for many to maintain a healthy diet and balanced lifestyle. An important question is what role the firm plays in the diet culture of weight loss. Do some research and discuss the fall in profitability (market share) in recent times of either Weight Watchers or Jenny Craig—two historical giants in the weight-loss diet sector— from this unit using the concept of creative destruction.

b. Consider the firm Novo Nordisk and the production of Ozempic, a class of diabetes drugs which can additionally be used to treat weight-loss by mimicking GLP-1 to suppress appetite. At present, the firm has mostly a monopoly on this kind of injectable drug where semaglutide is the key active ingredient. For some context, read the following freely available articles:

The price it charges for the drug varies greatly across different countries, as presented in the study by Barber et al. (2024), The study shows that the firm can still make a profit even if the price of this drug was set at a low price of say $10 per month, given that the costs of production for a pre-filled insulin pen are around $5 (max.)

Your task is to show what the profit of this firm might look like using a key economics diagram. To make graphing easier, we will consider the price of the Ozempic drug for the middle-income country Bangladesh, which is $38 (assumed the profit-maximising price). For this task, you will be required to illustrate and explain to a typical first-year undergrad student who has no economics background the profit the firm makes at $38 per month, and what has happened to profit (producer surplus), markup, consumer surplus and the output if the price was reduced from $38 to $10 per month.

To help you construct the relevant diagram, here are some instructions and assumptions:

• You will hand draw one (1) diagram with an isoprofit curve, which is an adaptation of Figure 7.9d from the CORE ESPP text. An adaptation means that you modify the main diagram from the text to suit the case study at hand, for the drug used for diabetes and/or fight weight gain. Assume unit costs of production of this drug are a constant $5 per month.
• You are only required to draw one isoprofit curve at this profit-maximising price of $38 per month. Be accurate when you draw your isoprofit curve, but there is no need to calculate with precision every single point on the isoprofit curve. To show that your profit is the same (‘iso’), calculate and show workings of what the (same) iso-profit would be for $50 and for $20.
• For the incremental quantities of drug production on the x-axis, use hypothetical values (rough guesses from your imagination). Also use your intuition for making up other prices/costs of the drug on the y-axis and make up a demand (straight-line) ‘curve’.
• Finally, calculate and show workings for the change in producer surplus and markup,

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