It is vital to understand factors that play a role in determining whether the firm is recovering its cost, maximizing profits, or not predicting its future closure or tangential decisions [1]. Firms minimize costs when their output equals the costs of spending (inputs) like wage and rental rates on labor and capital [1]. It is also evident that the relationship between the output and inputs(total costs) of a firm is dependent on its nature of production [1]. Depending on the different output levels, the level of inputs exists for the cost minimization of a firm, also known as the expansion path ¹The factors that play a role in determining if the firm is indeed minimizing costs are the types of fixed and variable costs, returns to scale, input marketing prices, prices of the product, and the overall output decisions in the short and long run, depending on the cost curve shifts [1].

• Types of costs: There exist different types of costs a firm might face. It includes explicit and implicit costs like opportunity, accounting, economic, labor, and capital costs [1]. For the predictive ability of the economic model, only labor and capital costs are considered to determine the cost minimization techniques of a firm [1]. The COVID-19 vaccine involves two areas: production and vaccination services [12]. Generic pharmaceutical companies differ in the type of product they produce, i.e., the difference in the production of vaccines compared to drugs [12]. The manufacturing of vaccines is more complex and involves supply chain concerns alongside production and R&D [12]. Several costs involved in vaccine production include capital (technology, skills, high GMP standards), R&D costs, and labor-associated costs like clinical trials [12].
• Economies of Scales (returns to scale): The economies of scale help us determine the firm’s production function and the aspects that help minimize input costs [1]. Different factors like mergers, consolidation, or certain outsourcing services help save costs for the firms in the healthcare sector [13-16]. The economy of scale for vaccine production seems to be decreasing returns to scale [12]. The critical determinants for the economy of scales for vaccine productions are investment capacity and efficient risk management [12].
• Shifts in cost curves: Firms in the short-run tend to face inflexibility about input decisions, while firms have flexible inputs decision-making opportunities in the long run [1]. The goal of any firm is to minimize cost and maximize profits, so it is vital to understand it from the long-run and short-run periods [1]. The cost curves for a firm shift if a change in input prices, technological innovation, or substitution rate of inputs [1]. Pharmaceutical companies receive incentives through public funding to convince them to undertake research and development with minimal concerns for cost curve shifts [8].
• Input market pricing (Costs for labor and capital/time): In a perfectly competitive market scenario, all the inputs are hired at the same rate, and no one person influences the wage or rental rates of the inputs [1]. In the U.S., pharmaceutical companies benefit from hiring at minimal cost for inputs as a significant proportion of R&D capital comes from public-funded science and subsidies [8]. However, for the research and development of new vaccine the estimated cost is about $68 billion [17].
• Price: In a perfectly competitive market, both the suppliers and the demanders are price takers [1]. Hence, in a perfectly competitive market scenario, firms have only one decision: how much to produce [1]? Price also plays a role in rationing demand and indicators for suppliers on output to help achieve efficient points [1]. However, it is established that healthcare providers engage in price discrimination which helps them cost shift for charity services ¹⁸. Price discrimination violates the assumption of efficient equilibrium and carries social costs [1,18]. It is also established that price secrecy encourages anti-competitive markets, but it is acceptable behavior in healthcare due to differential costs incurred by different types of healthcare service providers [18]. If the consumer and supplier have complete information on prices, they could decide which is the best option for them to buy or hire [18]. However, if the price discrimination persists, the marginal revenue cannot be equal to the marginal cost for a firm, and it violates the assumption of competitive markets [19]. Since the pharmaceutical company can decide its price for commercialization, the case for vaccine pricing is quite different (Agarwal, 2020; Sarangi & Damodaran, 2021; Vaccine Capitalism: A Run-down of the Huge Profits Being Made from COVID-19 Vaccines, 2021).
• Output decisions: When a firm is making losses, it has two decisions to make in a competitive market: whether to shut down or continue production [22]. Marginal revenue is less than marginal costs, in which case the hospitals might decide to reduce output. To maximize profits, total revenue must be higher than the total cost [22]. Only then could it sustain itself in the market [22]. The decision to shut down depends on fixed and variable costs, which vary in the long and short run, as mentioned before in this paper.
• Moreover, in the literature, it is established that total assets and revenue/cost are positively correlated in the healthcare service sector [23]. At the same time, gross profits are negatively associated with assets and revenue/cost for a hospital's financial performance [23]. Hence, this paper established that the key predictors for a pharmaceutical company in healthcare would depend on the type of ownership, size of the pharmaceutical company producing vaccines, and other R&D relevant factors. The decision to shut down hence depends on the following scenarios in a competitive market [22]:
• If the firm decides to shut down now, revenues are zero without incurring any variable costs like administrative staff, health care staff, etc. In such a scenario, it will only have to continue paying fixed costs like lease amount, capital rental rates, etc.
• The firm earns revenues that are lower than the variable costs incurred. In such a scenario, the firm would decide to shut down immediately [24]. They would have to pay out of pocket to cover the variables costs exceeding the revenues made.
• If the firm generates revenue exceeding the variable costs, it might continue operating and staying in business.

In the COVID-19 pandemic, several private sector hospitals and clinics are shutting down due to multifactor effects of discontinuity in medical tourism, elective procedures, increases the cost for PPE and other necessary equipment to treat patients, patients deferring treatment out of fear for infection, and finally, the inability of the patients to pay out of pocket [24].

Supply and Demand Side

The equilibrium price is the price at which quantity demanded equals quantity supplied. While determining equilibrium price, it’s essential to consider the time frame in which supply response occurs [1]. Supply response is the change in quantity supplied due to change in demand conditions ¹. Time frames can be categorized into [1]:

1-Very short run in which the quantity supplied is fixed

2-Short run in which existing firms can respond but no new entry

3-Long run in which existing firms can respond, and new firms can enter

In the very short run, the prices rise if demand increases as the supply are fixed, so to keep up the supply, the rationing is done by increasing the price [1]. The elasticity of both the supply and demand curve help determine how responsive each curve is to the price change [1]. In healthcare services, staffing decisions depend on the hospital’s financial performance [25]. It includes downsizing caregiving staff and replacing expensive qualified staff with assistive, less expensive personnel [25].  In staffing decision-making, several evaluations like benefits are incurred by hiring each additional staff member contingent on the patient's illness severity, reimbursements amount for that patient, and caseloads [25]. Vaccines face minimal generic and price competitions, and the major demander is the government of any country [12]. It is also evident that the two key identified parties for both supply and demand-side are government (Demand) and Pharmaceutical companies (Supply) [12].

Externalities and why markets fail in healthcare

An externality is the effect of one party’s economic activity on another party not considered by the price system [1,26]. It could be positive (benefits) or incurring negative costs [1]. Externalities occur between Firms, firms, and people, and between people [1]. Externalities lead to inefficient resource allocation as in externality, Price= Marginal Social Cost, which could be positive or negative [1]. An externality, which is negative,  Price=  Marginal Cost will output too many goods than efficient allocative outcomes (P=MSC) [1]. When there exist positive externalities government can intervene in several ways like providing subsidies on the demand side, supply-side subsidy, or both sides subsidies [19]. The government, through policy interventions, can also help solve externalities [27].

Externalities, COVID-19 Vaccines, and role of Government

Infectious disease like COVID-19 is associated with several externalities, and it is vital to understand such infectious disease from an economic perspective [26]. The two types of externalities associated with such pandemic are infection externality and pure prevention externality [26]. Ultimately both these types of externalities guide government interventions for any country [26]. The externalities can be efficiently tackled through public policies like mass vaccination [26]. An eradication policy is not necessarily a policy that can efficiently offset the externalities, so governments need to weigh the benefits of subsidies [26]. The negative externalities and their mitigation costs in the COVID-19 pandemic are heterogeneously present among different vulnerable groups of people [28].

Vaccines and vaccination have a positive externality to not just a few people but inclusive of a greater proportion of the population [12].  The negative externality involved for COVID-19 vaccination is denial to get vaccinated out of fear of side effects [29]. This, in turn, impacts the country and its federal system if herd immunity isn’t achieved [29]. The potential solution to this is providing incentives to get vaccinated [29]. In terms of negative externality to the public, the only prominent one seems to be allowing the pharmaceutical companies to set the price for the vaccine [21]. The role of the government in resolving this is to regulate and or cap the price the pharmaceutical company can charge in the long run and not in the short run other than the agreed price [21]. However, the pharmaceutical company seems to be on neither side of the externality horizon due to the criticality of the pandemic and the support they receive [20,30,31].