Vilter

(Disposable Face Mask)

I. Market Scenario

PreventuTM, is a Philippines-based manufacturing company that specializes in making

filter membranes for various industrial applications such as water/wastewater treatment,
fuel refinement, etc. They are best known for their specialized bio-membranes which is
able to efficiently filter organic contaminants and at the same time, remove coliforms
from municipal sewages. Due to the COVID-19 pandemic, and because of their
advanced filter-making technology, Preventu TM has ventured in making disposable face
masks with the line name “Vilter”, which stands for Virus Filter. Face masks are of high
demand because of the consumer’s rising awareness of its benefits and it has been
made mandatory by majority of the municipalities in the Philippines. According to an
article in the Philippine News Agency [CITATION Cri20 \n \t \l 1033 ], on a daily basis, an
estimate of 40 million pieces of disposable masks are used in the Philippines.
PreventuTM started modifying their production lines in May 2020 and started producing
and selling Vilter late June 2020.

Due to more relaxed quarantine restrictions, the supply chain which includes the
mobility of raw materials as well as delivery of products has become stable. Adding to
this is the resumption of most businesses and jobs making income streams for most
households generally stable. Consequently, the existence of other competitors and the
availability of reusable face masks, N95 masks and plastic face shields as alternatives
have stabilized the market for disposable face masks in terms of supply and demand
(mid-June 2020). With this, Preventu TM has determined the following demand and
supply curve for Vilter:

Price-Demand Curve : P=180−0.1 Q2d [1]

Price-Supply Curve : P=0.2Q 2s +0.6 Qs + 95 [2]

Where P is the corresponding market price in Php for every quantity of Vilter that the
consumers are willing to buy (Q d ), and for every quantity that Preventu TM is able to
supply (Q s ). Qd and Q s are quantities in thousand boxes where every box contains 100
disposable masks.

The price-demand curve (Equation 1) is quadratic in form. Conventionally, demand

curves are linear in nature however, several factors have affected the demand which
lead to an equation of such form. With the assumption that other things are equal, that
is, income, consumer’s preference and product expectations, the behavior of the
demand curve is mainly affected by incorporating the possibility of “bulk” purchase or
sale. This factor was emphasized in an article by Vali [CITATION Val16 \n \t \l 1033 ] in
the Journal of Contemporary Management. Other factors such as differences in the
consumption rate (e.g. a particular consumer may use a single face mask for eight
hours as opposed to the recommended 4-hour use) also affect the behavior of the
curve.

Similarly, the price-supply curve (Equation 2) is quadratic in nature. Since the Vilter
production line is new, the company opted to start with 70% of its full capacity, that is,
to test whether the bulk products consistently met industry and health standards, as well
as the initial target sales. With the success of the testing period, the line was tested at
85% capacity until it was running at full capacity. With the assumption that prices of raw
materials are essentially constant and are available, the varying utilization rates of the
production line affects the behavior of the supply curve. This factor was also
emphasized by Boehm and Nayar [CITATION Boe20 \n \t \l 1033 ] in which it was shown
in their paper that the non-linearity of the supply curves in most industries is affected by
the levels of capacity utilization. Supply curves are essentially flat at low levels of
capacity utilization but increasing at higher levels.

II. Price-Demand and Price-Supply Curve

Presented in Figure 1 is the graphical representation of the price-demand and price-

supply curve for Vilter face masks. The curves were truncated from Q=0 since there
can be no negative demand or supply. The graph was generated using Desmos.

P=0.2Q 2s +0.6 Qs + 95

P=180−0.1 Q2d

(thousand boxes)

Figure 1. Price-demand ( ) and price-supply ( ) curve for Vilter.

III.Equilibrium Point

The equilibrium point or market equilibrium, where the quantity of Vilter demanded
equals the quantity supplied is at 16 thousand boxes for a market price of Php 154.70
(Calculation for the equilibrium point is in the Annexes Section). Graphically (Figure 2),
the equilibrium point is the intersection between the two curves.

154.70 Equilibrium point

15.9 ~ 16 (thousand boxes)

Figure 2. Equilibrium point for Vilter.

IV. Consumer’s Surplus and Producer’s Surplus

The consumer’s surplus, which is the benefit enjoyed or the value derived by the
consumers from purchasing a good is Php 263,510. (Calculation for the consumer’s
surplus is in the Annexes Section). Graphically (Figure 3), the consumer’s surplus is the
area below the demand curve and the above the equilibrium price.
 Consumer’s
Surplus

154.70 Equilibrium point

15.9 ~ 16 (thousand boxes)

Figure 3. Graphical representation of the consumer's surplus for Vilter .

The producer’s surplus, which is the benefit enjoyed or the value derived by Prevento
from the transactions is Php 607,000. (Calculation for the producer’s surplus is in the
Annexes Section). Graphically (Figure 4), the producer’s surplus is the area below the
equilibrium price and above the supply curve.

154.7 Equilibrium point

0

Producer’s
Surplus

15.9 ~ 16

Figure 4. Graphical representation of the producer's surplus for Vilter.

 (thousand boxes)

V. References

Vali, S. (2016). An interesting case of quadratic demand function or "Wal-Mart/Apple"

effect. Journal of Contemporary Management, 42-46.

Boehm, C., & Pandalai-Nayar, N. (2020). Convex Supply Curves. National Bureau of
Economic Research.

Crismundo, K. (2020, April 17). Retrieved from Philippines News Agency:

https://www.pna.gov.ph/articles/1100201#:~:text=MANILA
%20%E2%80%93%20Trade%20Secretary%20Ramon%20Lopez,(Covid
%2D19)%20pandemic.&text=Before%20the%20outbreak%20of%20the,which
%20is%20based%20in%20Bataan.
VI. Annexes

a. Calculation of the equilibrium point:

Price-Demand Curve : P=180−0.1 Q2d

Price-Supply Curve : P=0.2Q 2s +0.6 Q s + 95

By definition, the equilibrium point is the where the quantity demanded equals the
quantity supplied or Q d =Q s =Q which occurs at the same P. Simply, this is the
intersection between the two curves where the two equations are equal. Therefore,

Price-Demand Curve = Price-Supply Curve

180−0.1Q 2=0.2Q 2 +0.6 Q+95

By rearranging and combining similar terms in the equation, the following equation is
obtained:

0. 3 Q 2+ 0.6 Q−8 5=0

Divide all the terms in the equation by 0.3:

Q 2 +2Q−283.33=0

Find the factors of the quadratic equation using the quadratic formula:

−b ± √ b2−4 ac
Q=
2a

Where a=1, b=2 and c=−283.33.

−2 ± √22−4 (1)(−283.33)
Q=
2(1)

Q=15.9 and Q=−17.9

Since there can be no negative supply or demand, at equilibrium (Q e ) :

Q e =15.9 16

Calculating the equilibrium price ( Pe ) using the price-demand curve:

Pe =180−0.1 ( 15.9 )2
 Pe =154 .7

b. Calculation of the Consumer’s Surplus

Sketch a rectangular strip in the consumer’s surplus region.

Consumer’s
Surplus

154.70 Equilibrium point

∆ Qd

P=180−0.1 Q2d

15.9 ~ 16 (thousand boxes)

Calculating the area ( A):

A=length of the rectangular strip∗width of the rectangular strip

15.9
A= ∫ (180−0.1Q 2d ¿−154.7)d Q d ¿
0

15.9
A= ∫ (25.3−0.1 Q2d ¿) d Q d ¿
0

15.9
0.1Q 3d
A=25.3Q d −
3 ]
0

0.1 (15.9 )3 0.1 ( 0 )3

[
A= 25.3 ( 15.9 )−
3 ][
− 25.3 ( 0 )−
3 ]
A=263.51
Since Q d is in thousand boxes, therefore:

Consumer’s Surplus = A∗1000=Php 263.51∗1000

Consumer’s Surplus = Php 263 ,510

c. Calculation of the Producers Surplus

Sketch a rectangular strip in the producer’s surplus region.

P=0.2Q 2s +0.6 Q s + 95

154.70 Equilibrium point

∆ Qs
Producer’s
Surplus

15.9 ~ 16 (thousand boxes)

Calculating the area ( A):

A=length of the rectangular strip∗width of the rectangular strip

15.9
A= ∫ (¿ 154.7−0.2 Q2s −0.6 Q s −9 5) d Qs ¿
0

15.9
A= ∫ (¿ 59. 7−0.6Q s−0.2 Q 2s ) d Q s ¿
0

15.9
0.6∗Q 2s 0.2Q3s
A=59. 7 Qs −
2
−
3 ]
0
 0.6 (15.9 )2 0. 2 ( 15.9 )3 0.6 ( 0 )2 0.2 ( 0 )3
[
A= 59.7 ( 15.9 )−
2
−
3 ][
− 59.7 ( 0 )−
2
−
3 ]
A=607.00

Since Qd is in thousand boxes, therefore:

Consumer’s Surplus = A∗1000=Php 607.00∗1000

Consumer’s Surplus = Php 607 , 000