Transcript Computation of Expectation of Life

$/unit DRUG
$100 million
COMPANY ECONOMICS
$100 million per pill??
NOT LIKELY
1 pill
Quantity of pills
$/unit DRUG
$100 million
COMPANY ECONOMICS
How much must be
Charged per pill to
Breakeven at
1,000,000 pills?
How much per pill to breakeven
at 100,000,000 pills?
1 pill 1,000,000 pills 100,000,000 pills
Quantity of pills
$/unit DRUG
$100 million/pill
COMPANY ECONOMICS
$100/pill
$1/pill
Average Fixed Cost
1 pill 1,000,000 pills 100,000,000 pills
Quantity of pills
$/unit
DRUG COMPANY ECONOMICS
Average Total Cost= Average fixed cost
+ Average variable Cost
AFC=
AVC=$1.00}
Quantity of pills
$/unit
DRUG COMPANY ECONOMICS
The more the drug companies sell,
The more the fixed costs can be spread,
And the greater the profit.
LOSS
Price =$5
PROFIT
AFC=
AVC=$1.00}
Quantity of pills
$/unit
DRUG COMPANY ECONOMICS
What happens if the drug companies
Don’t sell at $1 in Africa?
Are they selling at a loss in Africa?
LOSS
Price =$5
PROFIT
AFC=
AVC=$1.00}
Quantity of pills
$/unit
DRUG COMPANY ECONOMICS
P=$12
For U.S.
W/ PRICE DISCRIMINATION
P=$8.55 for “rich countries”
Price =$5
PROFIT
Price =$2.10 for “middle income”
AVC=$1.00}
Price =$1 for
Africa
Quantity of pills