busi 620 dis 1 q10.docx - Item10 You are the manager of an...

Item10
You are the manager of an organization in America that distributes blood to
hospitals in all 50 states and the District of Columbia. A recent report
indicates that nearly 50 Americans contract HIV each year through blood
transfusions. Although every pint of blood donated in the United States
undergoes a battery of nine different tests, existing screening methods can
detect only the antibodies produced by the body’s immune system – not
foreign agents in the blood. Since it takes weeks or even months for these
antibodies to build up in the blood, newly infected HIV donors can pass along
the virus through blood that has passed existing screening tests. Happily,
researchers have developed a series of new tests aimed at detecting and
removing infections from donated blood before it is used in transfusions. The
obvious benefit of these tests is the reduced incidence of infection through
blood transfusions. The report indicates that the current price of
decontaminated blood is $60 per pint. However, if the new screening
methods are adopted, the demand and supply for decontaminated blood will
change to
Q
d
= 210 − 1.5 P and Q
s
= 2.5 P − 150.
What price do you expect to prevail if the new screening methods are
adopted? How many units of blood will be used in the United States? What is
the level of consumer and producer surplus? Illustrate your findings in a