Note: This document is a much summarized version of the items your next examination is based on. It is only intended to be used as one of the several sources students should use to study for the exam. Review Monopoly, Monopolistic Competition, and Oligopoly market structures (which are also part of your week 4 and week 5 lectures) as this was not included in exam 1. I have given an outline in the study guide for the three market structures it is enough if you focus on these outline. Give a quick review of four market structures. This will help you to understand topic 4, topic 5, topic 6, topic 7.  Oligopoly Market structure characterized by competition among a small number of large firms that have market power, but that must take their rivals' actions into account when developing their own competitive strategies. The main feature in an oligopoly, thus, is that firms are interdependent.   Given their kinked demand curve, oligopolies will tend to avoid competing in terms of prices (prices tend to fluctuate far less compared to other types of market structures). Price Discrimination Relationship between price and elasticity of demand Marginal analysis rules says that, if MR>MC, reduce price and if MR<MC, increase price Lerner’s Index L = 1/|e|, here L is given by (P-MC)/P which gives the equation (P-MC)/P = 1/|e| Here MR>MC means (P-MC)/P > 1/|e| and MR < MC means (P-MC)/P < 1/|e| (P-MC)/P is the Current Margin of profit, 1/|e| is the Desired Margin of profit If the current margin of profit> desired margin of profit, reduce price. If the current margin of profit < desired margin of profit, increase price. This can be interpreted as, the more elastic the demand becomes, 1/|e| becomes smaller. This leads to decrease in price/the price increase is very slow over MC. This is because the consumer might move to another substitute as the price increases. Pricing commonly owned substitutes If the store owns one brand of substitute, decreasing the price on one brand increase the quantity demanded and increases the revenue If the stores owns two brands of the substitute (Coke and Pepsi, Honda and Toyota), increasing the sales of one brand by reducing the price will steal the sales from the other brand. This is called Cannibalization. To counter the falling MR, raising the price of both the brands (to an extent that it does not affect the sales of the other brand) will lead to higher profits. Reason: This is because these two substitutes are treated as bundle of goods. Firms lose the incentive to drop prices as the firms in such situation is “competing with itself”. Demand for bundle of substitutes are less elastic (EP < 1), than demand for individual products. For products with less elastic demand raise price (higher optimal price) to increase sales and revenue. Note: Raise price more on the more elastic product (EP > 1). This will push the price-sensitive customers to the higher profit margin product. For example, raise prices on both butter and .

1. Note: This document is a much summarized version of the items
your next examination is based on. It is only intended to be used
as one of the several sources students should use to study for
the exam.
Review Monopoly, Monopolistic Competition, and Oligopoly
market structures (which are also part of your week 4 and week
5 lectures) as this was not included in exam 1. I have given an
outline in the study guide for the three market structures it is
enough if you focus on these outline.
Give a quick review of four market structures. This will
help you to understand topic 4, topic 5, topic 6, topic 7.
Oligopoly
Market structure characterized by competition among a small
number of large firms that have market power, but that must
take their rivals' actions into account when developing their
own competitive strategies. The main feature in an oligopoly,
thus, is that firms are interdependent.
Given their kinked demand curve, oligopolies will tend to avoid
competing in terms of prices (prices tend to fluctuate far less
compared to other types of market structures).
Price Discrimination
Relationship between price and elasticity of demand
Marginal analysis rules says that, if MR>MC, reduce price and
if MR<MC, increase price
Lerner’s Index L = 1/|e|, here L is given by (P-MC)/P
which gives the equation
(P-MC)/P = 1/|e|
Here MR>MC means (P-MC)/P > 1/|e| and MR < MC means (P-
MC)/P < 1/|e|
(P-MC)/P is the Current Margin of profit, 1/|e| is the Desired

2. Margin of profit
If the current margin of profit> desired margin of profit, reduce
price. If the current margin of profit < desired margin of profit,
increase price.
This can be interpreted as, the more elastic the demand
becomes, 1/|e| becomes smaller. This leads to decrease in
price/the price increase is very slow over MC. This is because
the consumer might move to another substitute as the price
increases.
Pricing commonly owned substitutes
If the store owns one brand of substitute, decreasing the price
on one brand increase the quantity demanded and increases the
revenue
If the stores owns two brands of the substitute (Coke and Pepsi,
Honda and Toyota), increasing the sales of one brand by
reducing the price will steal the sales from the other brand. This
is called Cannibalization.
To counter the falling MR, raising the price of both the brands
(to an extent that it does not affect the sales of the other brand)
will lead to higher profits.
Reason: This is because these two substitutes are treated as
bundle of goods. Firms lose the incentive to drop prices as the
firms in such situation is “competing with itself”.
Demand for bundle of substitutes are less elastic (EP < 1), than
demand for individual products. For products with less elastic
demand raise price (higher optimal price) to increase sales and
revenue.
Note: Raise price more on the more elastic product (EP > 1).
This will push the price-sensitive customers to the higher profit
margin product.
For example, raise prices on both butter and margarine to sell
both at a higher optimal price. Raise price more on margarine
(highly elastic good) to push the price-sensitive customers to
the higher profit margin good.
Pricing commonly owned compliments
If the store owns one brand of compliments, increasing the price

3. on one brand decreases the quantity demanded and decreases the
revenue
If the stores owns two brands of the compliments (concerts and
parking lots, printer and cartridges), reduce the price of both the
brands (to an extent that it does not affect the sales of the other
brand) will lead to higher profits.
Reason: This is because these two compliments are treated as
bundle of goods. Firms lose the incentive to increase prices as
the firms in such situation is “competing with itself”.
Demand for bundle of compliments are more elastic (EP > 1),
than demand for individual products. For products with more
elastic demand reduce price (higher optimal price) to increase
sales and revenue.
Revenue or Yield Management (Chapter 12, section 12.2)
Products: Hotels, stadiums, parking lots, cruise ships
Constraints: Lot of constraints one among them is space or
building capacity. The costs associated with this constraint is
mostly sunk or fixed cost.
Pricing Decisions: Owners have an incentive to keep adding
capacity as long as
LRMR > LRMC
The owners stop building additional capacity when LRMR =
LRMC
To set price, only relevant costs are included and these are
short-run MR and short-run MC.
If MR > MC, then price to fill the capacity. But
since they have capacity constraint they cannot reduce price to
fill more room.
Optimal pricing decision in such case is to balance the cost of
over pricing (lost profit of unfilled rooms/cabins) against the
cost of underpricing (lower margins on all rooms/cabins).
Direct Price Discrimination
The bigger the difference between group elasticities, the more
profit there is in designing a price discrimination scheme.
To price discriminate

4. · ID different groups with different price elasticities or different
values
· Find a way to prevent arbitrage
· Firms identify members of the “low-value” group.
· Charge low-value costumers a lower price
· Prevent resale (arbitrage) to higher-value consumers.
· Identify the groups’ price elasticities and set an optimal price
for each group.
Indirect Price Discrimination occurs when you:
· Cannot ID members of groups; OR cannot prevent arbitrage
· Instead, discriminate by offering two products, a higher-
priced, higher-quality good and a lower-priced, lower-quality
good.
· Examples: airline companies identifying leisure and business
travelers, student vs full-version of software
· Adobe Photoshop (elements Vs. Professional), Matlab (student
Vs. Full version)
Robinson-Patman Act
Robinson-Patman act is a part of group of laws collectively
called as anti-trust law which governs competition in the U.S.
Under this act, it is illegal to receive or give price discounts to
the goods sold to other businesses. Robinson-Patman act, also
called as the Anti-Chain Store act tries to protect the
independent retailers from chain-store competitors by
preventing the chains from receiving supplier discounts.
There are two ways you can defend from the Robinson-Patman
lawsuit:
1. You can claim that the price-discount was cost
justified
2. Price discount was given to meet the competition
Game Theory
Method of studying strategic situations in various possible
outcomes involving two or more players whose actions are

5. independent of each other’s.
Simultaneous move-game: Player move simultaneously and do
not have information on each other’s move. They can predict
what move other player is going to make and make a choice
accordingly.
Sequential Games: No two players move at the same time.
Players have several moves. Assumption is that sequential
games have perfect information. In sequential move games
players take turns and each player observes what the other did,
before they get to decide what course of action to take.
Equilibria of sequential games, where players take turns
moving, are influenced by who moves first (a potential first-
mover advantage), and who can commit to a future course of
action. Credible commitments are difficult to make because they
require that players threaten to act in an unprintable way—
against their self-interest.
Backward Induction: We start at the end and work our way
up toward the beginning.
“When every player has a sequential move work your way
backward and find all the optimal strategies in every given
situation. These process continues backwards in time all the
way until all the players’ actions and the optimal strategies have
been determined. These optimal strategies in each situation is
sub-game perfect Nash equilibrium. "
Dominant Strategy: A strategy that results in a best possible
outcome or a highest pay-off to a given player irrespective of
the strategy that the other player chooses.
Nash Equilibrium: This is a set of strategies from which each
player chooses his/her best strategy, given the strategy of other
players. Once the strategy has been chosen the players have no
incentive to change their strategy (they will not get a better
pay-off by changing the strategy).
Nash equilibrium is a solution to non-cooperative behavior
among players and it is pareto inefficient.
Read the example of notes that is posted along with this
document on how to find dominant strategy for each player and

6. Nash equilibrium.
Learn how to solve for dominant strategy and Nash equilibrium.
You can use the examples in the PPT or the example that is
posted on Padlet with a title “Nash”
Labor Markets
The interactions between supply and demand in the market
determines equilibrium price (wage rate (wage/hour)) and
equilibrium quantity (the amount of labor units that is required
for the production of goods and services in the economy.
Profit maximization occurs at a point where the marginal cost of
hiring an additional unit of labor is equal the marginal revenue
of hiring an additional unit of labor.
That is the revenue generated from the marginal productivity of
the additional unit of labor is equal to the marginal cost of
hiring the additional unit of labor.
Marginal Revenue Product (MRP) of labor is the additional
revenue generated from additional productivity produced by
hiring an additional unit of labor.
=
Marginal Factor Cost (MFC) of labor is the additional cost
incurred by the firms/businesses by hiring an additional unit of
labor/worker. This is the additional wage paid to the worker.
=
· A firm will hire more labor if MRP (L) > MFC (L).
· A firm will use not hire labor if MRP (L) < MFC (L).
· Profit maximization for a firm occurs at a point where for each
additional level of labor results in MRP (L) = MFC (L).
Marginal revenue product curve is also the demand curve of the
labor market. When there is demand for goods/services, there
will be demand for productivity and the demand for labor
increases.
This is why labor demand is derived demand as the demand for
labor is not a direct demand but comes from the demand for
goods and services.
MRP (L) shows that the demand for labor depends on two things
MRP = MR (L) * MP (L)

7. MR (L) – Marginal revenue generated from marginal labor
productivity
MP (L) – Marginal labor productivity.
In a perfectly competitive market MRP = P, MFC = W and wage
is nothing but the price we pay to hire each labor based on our
demand.
Diminishing Marginal Returns
Up to a certain point each additional unit of labor yields higher
productivity resulting in higher marginal revenue (MR). Then
marginal revenue starts increasing at a decreasing rate reaching
a point where (MRP (L) = MFC (L)) (MR = MC).
Finally MR decreases and MRP < MFC.
This is diminishing marginal returns and this occurs because of
decrease in labor productivity (diminishing marginal
productivity of labor)
Labor Supply: This is the total hours that workers wish to work
at a given real wage rate.
Two different effects are seen due to increase in wage rates.
1. Substitution effect
· Worker will offer himself for more hours
· The price of 'leisure' will become relatively expensive
· Worker will substitute 'leisure' hours for 'work' hours
Wage rate and labor hours always has positive relationship (as
wage rate increases labor hours also increases)
2. Income effect
· Higher wages lead to an increment of the individual's real
income
· People (some) continue to earn high amount of money and
they start valuing leisure more than money
· Demand for leisure increases as the price of leisure drops
This leads to decrease in demand for working hours
Monopsony in labor Market
A monopsony occurs when a firm has market power in
employing factors of production. A monopsony means there is

8. one buyer and many sellers.
An example of a monopsony occurs when there is one major
employer and many workers seeking to gain employment. If
there is only one main employer of labor, then they have market
power in setting wages and choosing how many workers to
employ.
Example:
Coal mine owner in town where coal mining is primary source
of employment.
Minimum Wage in Monopsony
WE
Monopsony firms would like to set wages lower than the
equilibrium wages set by the market at WE.
If the price floor is below the equilibrium wage rate, then there
is no economic effect.
A price floor above the equilibrium wage rate (W1) will have
decrease in labor demand from L1 to L0 as the MFC of hiring
labor is high with price floor.
Moral hazard and Adverse Selection
Both moral hazard and adverse selection arise from information
asymmetry.
Adverse selection arise from hidden information about the type
of individual you are dealing with.
Example: Hiring a sales person who is not good in sales, Risk
loving applicant getting an insurance with low premium by
providing false information.
Moral hazards arise from hidden actions about the type of
individual you are dealing with. These people have a tendency
to change their behavior after getting hired or getting an
insurance.
Example: Employee who spends more time browsing/chatting
after getting hired. Not installing a smoke alarm because you
have home insurance/fire insurance.

9. Read about how to prevent Moral hazard and adverse selection
behavior (Read chapters 19 and 20, especially section 20.3).
Decision making and Uncertainty
There are some phenomena where the outcomes of decisions are
associated with uncertainty. The set of all the possible outcomes
is known in this phenomena. To model uncertainty we use
random variables to compute the expected costs and benefits of
a decision.
To represent values that are uncertain,
· list the possible values the variable could take,
· assign a probability to each value, and
· compute the expected values (average outcomes) by
calculating a weighted average using the probabilities as the
weights.
Expected Value or Expected Monetary Value or Expected
Benefits is given by
EV =
i – 1, 2, n
X – Random variable which can have ‘n’ number of values, (1,
2, .n)
P – Probability associated with each random variable, (P1,
P2…... Pn)
For example,
EV =
Where,
Compute expected values of both benefits and costs of a
decision
The expected value of a decision with uncertainty is given by
the sum probabilities of various outcomes of a (risky) event
multiplied by the expected pay-off associated with each of these
outcomes.
Choose a decision when benefits > costs, otherwise do not
choose.
Uncertainty is reduced by gathering information.
By modeling uncertainty, you can:

10. · Learn to make better decisions
· Identify the source(s) of risk in a decisions
· Compute the value of collecting more information.
Read the example of XYZ software (17.1) and tele switch (17.2)
from the PPT and the text book (chapter 17).
Type I and Type II Errors
Null hypothesis (H0): Person is innocent
· Type I Error: convicting an innocent person (Rejecting a null
hypothesis when it is true, false positive)
· Type II Error: not convicting a criminal (Not rejecting a null
hypothesis when it is false, false negative)
Null hypothesis
Alt. Hypothesis
Decision
Innocent
Not Innocent
Not Convicted
Correct Decision
Type II Error
Convicted
Type I Error
Correct Decision
Type I error: Rejecting a null hypothesis when it is true, false
positive.
Type II error: Not rejecting a null hypothesis when it is false
false negative.
Difference-In-Difference Estimators (DID)

11. · The classic DID estimator is the difference between before
and after the change and also between the tratment and the
control group.
· There will be unobserved factors that affect outcomes and also
that changes with the treatment. Because of this there will be
bias in any pre-post experiments.
· If the same unobserved factors affect the control group, then
by taking the difference of the difference estimates we can
remove the bias and isolate the treatment effect.
Example
When the FTC looked back at a 1998 gasoline merger in
Louisville, they used their own version of a difference-in-
difference estimator.
· Three control cities (Chicago, Houston, and Arlington) were
used to control for demand and supply shocks that could affect
price.
· The first difference was before vs. after the merger; the
second difference was Louisville prices vs. prices in control
cities– this allowed the FTC to isolate the effects of the merger
and determine its effect.
This is a general model. Use this model to understand how
the calculations are done and read the restaurant example in
chapter 17 (17.3).
Possible problems with difference-in-differences estimate
Proximity: A more representative control group provides
more precise estimate.
The value of conducting experiments depends on how well
the control, group represents the treatment group.
Possible problems with difference-in-differences estimate
Leakage: Leakage from one group to another group leads
to biased estimates.
Close proximity between control and treatment groups
might also lead to leakage from one group to another.
Auctions

12. Auctions are simply another form of competition, like price
competition or bargaining.
A Vickrey or second-price auction is a sealed-bid auction in
which the high bidder wins but pays only the second-highest
bid. These auctions are equivalent to oral auctions and are well
suited for use on the Internet.
The optimal bidding startegy of a Vickerey auction is to bid less
aggressively/to bid your true value.
Collusion or Bid Rigging: Bidders increase their profit by
agreeing not to bid against one another.
Occurs more likely in open auctions and in small, frequent
auctions.
If collusion is suspected,
· do not hold open auctions;
· do not hold small and frequent auctions;
· do not disclose information to bidders—do not announce who
the winners are, who else may be bidding, or what the winning
bids were.
Practice problems
1. Use the table provided to answer the following question.
Carving Knives
Home Users
Professional Chefs
No-Name Brand
$40
$70
High end professional series
$60
$130
Given that the firm only chooses to sell the high-end
professional series, how should it price its product?
a. Price low and sell to both groups.
b. Price high and sell only to the professional chefs.

13. c. Price low and sell only to the professional chefs.
d. Price low and sell only to the home users.
Answer: assuming there's an equal number of both users, the
correct answer is B.
1. Selling only to professional chefs at a high price would
bring a revenue of $130.
2. Selling to both users at a lower price of $60, would bring
$120 in revenues ($60+$60).
Since the price elasticity of demand is less elastic (EP < 1) for
the high-end professional series for professional chefs, the firm
can price high to increase their revenue.
2. At a fair carnival roulette wheel, a player can either win $10,
$30, or $80. Assuming a rational player, how much should the
game owner charge the player, to maximize his own profit?
a. $30
b. $50
c. $40
d. $70
Fair carnival roulette wheel means they have equal probabilities
(1/3) for all three pay-offs ($10, $30, or, $80).
Expected Value by playing the roulette wheel is = (1/3*$10) +
(1/3*$30) + (1/3*$80) = $40.
To maximize his own profit the game owner charge at a point
where marginal benefit equal marginal cost. Here marginal
benefit (profit) is $40. So the game owner should charge each
player $40 to maximize his own profit.
3. You raise your product price by $10 in market A but leave it
unchanged in market B. Sales in A fall from 840 to 740 units
per week while sales in B rise from 770 to 790 units. The
Difference-in-difference estimate of the effect of the price
change is:
a. 80 units
b. 100 units
c. 120 units

14. d. 140 units
Difference-in-Difference Estimator is given by taking the
difference in sales between pre and post introduction of
advertising intensity and also between markets A and B.
Pre-Price Increase
Post-Price Increase
Difference
Market A
840
740
840-740 = -100
Market B
770
790
790-770 = 20
Difference-in-Difference
-100-20 = -120 units
The reason we get -120 units is because it follows the “law of
demand” that with increase in price we get decrease in quantity
demanded.
4. Half of all your potential customers would pay $16 for your
product but the other half would only pay $10. You cannot tell
them apart. Your marginal costs are $4. If you set the price at
$10, the expected profit (per unit) is:
a. $3
b. $4
c. $5

15. d. $6
Since the price = $10, both high and low value consumers will
be able to buy the product.
The expected value (revenue) = (0.5*10)+(0.5*10) = $10
Marginal cost = $4
Expected profit = $10 - $4 = $6.
5. Transcendent Technologies is deciding between developing a
complicated thought-activated software, or a simple voice-
activated software. Since the thought-activated software is
complicated, it only has a 30% chance of actually going through
to a successful launch, but would generate revenues of
$50million if launched. The voice-activated software is simple
and hence has a 80% chance of being launched but only
generates a revenue of $10million. The complicated technology
costs 10million, whereas the simple technology costs 2million.
i) What is the expected revenue from developing the
complicated software?
a. $10million
b. $15million
c. $20million
d. $50million
Probability of successful launch of the complicated software =
0.3 (30%)
Revenue generated by the successful launch of the complicated
software = $50,000,000
Expected Revenue = 0.3*$50,000,000 = $15,000,000 (15
million)
ii) If the firm learns that the complicated technology can be
made more stable with a few tweaks increasing the cost by
5.5million and increasing the probability of a launch to 50%. Is
it worth for the firm to invest the $500,000 in tweaks?

16. a. No, because it decreases the total expected value
b. Yes, because it increases expected value
c. No, because it increases risk
d. Yes, because tweaking is good
New cost = $15,500,000
Revenue = $50,000,000
P(Launch) = 0.50 (50%)
Expected Gain = $50,000,000 *0.50 = $25,000,000
Expected Profit = $25,000,000 - $15,500,000 = $9,500,000
Tweaking is good because it increases the expected value (gain)
from $15 million to $25 million and also the expected profit
increased from $5 million to $9.5 million.
References:
Mankiw, G.N. 2016. Principles of Macroeconomics, Eighth
Edition. @ Cengage Learning.
Froeb, McCann, Shor, and ward, 2014. Managerial Economics:
A Problem Solving Approach. @ Cengage Learning.
REVIEW ARTICLE
The state of the art of islet transplantation and cell therapy
in type 1 diabetes
Silvia Pellegrini1 • Elisa Cantarelli1 • Valeria Sordi1 • Rita
Nano1 • Lorenzo Piemonti1
Received: 15 January 2016 / Accepted: 6 February 2016 /

17. Published online: 29 February 2016
� Springer-Verlag Italia 2016
Abstract In patients with type 1 diabetes (T1D), pan-
creatic b cells are destroyed by a selective autoimmune
attack and their replacement with functional insulin-pro-
ducing cells is the only possible cure for this disease. The
field of islet transplantation has evolved significantly from
the breakthrough of the Edmonton Protocol in 2000, since
significant advances in islet isolation and engraftment,
together with improved immunosuppressive strategies,
have been reported. The main limitations, however, remain
the insufficient supply of human tissue and the need for
lifelong immunosuppression therapy. Great effort is then
invested in finding innovative sources of insulin-producing
b cells. One old alternative with new recent perspectives is
the use of non-human donor cells, in particular porcine b
cells. Also the field of preexisting b cell expansion has
advanced, with the development of new human b cell lines.
Yet, large-scale production of human insulin-producing
cells from stem cells is the most recent and promising
alternative. In particular, the optimization of in vitro

18. strategies to differentiate human embryonic stem cells into
mature insulin-secreting b cells has made considerable
progress and recently led to the first clinical trial of stem
cell treatment for T1D. Finally, the discovery that it is
possible to derive human induced pluripotent stem cells
from somatic cells has raised the possibility that a sufficient
amount of patient-specific b cells can be derived from
patients through cell reprogramming and differentiation,
suggesting that in the future there might be a cell therapy
without immunosuppression.
Keywords b Cell replacement � Islet transplantation �
Xenotransplantation � Pluripotent stem cells
Introduction
The International Diabetes Federation (IDF) estimates that
415 million people worldwide have diabetes, a number that
is predicted to increase to 642 million by 2040 (http://
www.diabetesatlas.org). Type 1 diabetes (T1D), a disease
characterized by selective and progressive loss of insulin-
producing b cells caused by an autoimmune-mediated
destruction, accounts for approximately 10 % of these

19. cases. Administration of exogenous insulin, regular blood
glucose monitoring and dietary restrictions are the funda-
mental means of treating hyperglycemia in all patients with
T1D. Although lifesaving, insulin therapy does not restore
the physiological regulation of blood glucose [1] and is not
able to prevent either the dangerous states of hypoglycemia
or long-term complications [2] and the life expectancy of
these patients is still shorter compared to that of the general
population [3]. Although new technologies like slow-re-
lease insulin or insulin pumps have been developed in the
last years and have substantially improved glycemic con-
trol as well as the quality of life of patients with T1D [4], a
fail-safe physiological regulation of systemic blood glu-
cose levels remains challenging. The only possible defini-
tive cure for this disease consists in replacing the destroyed
b cell mass capable of sensing blood sugar levels and
secreting appropriate amounts of insulin in a glucose-de-
pendent manner. Increasing evidence indicates that b Cell
replacement restores protection from severe hypoglycemia,

20. Managed by Massimo Federici.
& Lorenzo Piemonti
[email protected]
1 Diabetes Research Institute, IRCCS San Raffaele Scientific
Institute, Milan, Italy
123
Acta Diabetol (2016) 53:683–691
DOI 10.1007/s00592-016-0847-z
http://orcid.org/0000-0002-2172-2198
http://www.diabetesatlas.org
http://www.diabetesatlas.org
http://crossmark.crossref.org/dialog/?doi=10.1007/s00592-016-
0847-z&amp;domain=pdf
http://crossmark.crossref.org/dialog/?doi=10.1007/s00592-016-
0847-z&amp;domain=pdf
reduces levels of glycated hemoglobin (HbA1c) and slows
progression of microvascular complications in patients
with T1D [5]. So far, the only available clinical approaches
able to restore b cell mass in patients with T1D are pan-
creas or pancreatic islet transplantation, which consists in
endocrine cells infusion into the recipient’s portal vein and
requires only a minimally invasive surgical procedure

21. compared to the complex vascularized pancreas trans-
plantation [6–8]. The field of islet transplantation has
evolved significantly over the last three decades thanks to
the incredible efforts of the research community worldwide
with continuous improvements in islet manufacturing
process and transplantation techniques, coupled with better
patient management and the development of more effective
induction and maintenance immunosuppressive protocols
[9]. In addition, islet transplantation represents an excellent
platform toward the development of cellular therapies
aimed at the restoration of b cell function using alternative
sources of b cells like xenogeneic islets or insulin-pro-
ducing cells derived from the differentiation of stem cells.
This review deals with the state of the art of islet
transplantation and the most promising sources of new b
cells for functional replacement in diabetes (Fig. 1).
Established procedures, ongoing clinical trials (Table 1)
and future developments of cell therapies will be discussed.
b Cell replacement with allogeneic pancreatic islets

22. Pancreatic islet transplantation has recently become an
accepted therapeutic option in subjects with unstable T1D.
The procedure itself may be performed as islet transplant
alone (ITA) in non-uremic patients with T1D, as simulta-
neous islet-kidney (SIK) in subjects with end-stage renal
disease or, if renal transplantation has already undergone,
as islet after kidney (IAK) transplantation. Ongoing clinical
trials are recruiting 18- to 65-year-old T1D subjects with
frequent metabolic instability (i.e., hypoglycemia, hyper-
glycemia, ketoacidosis) requiring medical treatment
despite intensive insulin therapy [10].
The first attempt of islet isolation and transplantation
was reported in 1972 by Ballinger and Lacy in chemically
induced diabetic rats [11], with Kemp et al. [12] estab-
lishing the liver as the most suitable site for islet implan-
tation. Five years later, the first islet infusion in human was
performed, with azathioprine and corticosteroid as
immunosuppressive drugs [13]. Since then, many efforts

23. and significant progress have been achieved in the field in
terms of human islet isolation [14], immunosuppression
strategies [15] and setting the optimal number of trans-
planted islets per kilogram of body weight [16].
Altogether these advances culminated in 2000 with the
publication of the Edmonton Protocol achieving a 100 %
insulin independence in seven patients with T1D receiving
islets from multiple donors and treated with a steroid-free
immunosuppression protocol [17]. The Edmonton Protocol
represented a fundamental proof-of-concept of the possi-
bility to achieve insulin independence through islet trans-
plantation. Few years later, the same group reported
sustained islet function as measured by the presence of
C-peptide in 73 % of their transplanted subjects with 15 %
insulin independence at 9 years after transplantation [18].
Recently, they reported a further update on long-term fol-
low-up of a cohort of the 36-patient international Immune
Tolerance Network trial having persistent graft survival at

24. the end of the clinical study. All patients remained free of
severe episodes of hypoglycemia and maintained HbA1c
7.0 % showing an overall long-lasting graft function with
a gradual decline in C-peptide levels during time. Impor-
tantly, the long follow-up showed long-term safety of the
procedure with the absence of severe infection, malig-
nancy, hypoglycemia and the stability of renal function
[19].
Since the initiation of the Edmonton Protocol, islet
transplant programs expanded in North America, Europe
and Australia, where alternative protocols for human islet
transplantation have been conducted in order to overcome
current limitations of the procedure, thus improving the
clinical outcome. The most recent report released by the
Collaborative Islet Transplant Registry (CITR, www.
citregistry.org) analyzes data coming from 864 islet allo-
graft recipients (686 ITA and 178 IAK) and 1679 infusions
in the era 1999–2012. A comprehensive report collecting
data available for the period 1999–2010 showed that the

25. rate of insulin independence at 3 years remarkably
improved during time: 27 % in the era 1999–2002, 37 % in
the era 2003–2006 and 44 % in the most recent era
2007–2010. Other parameters indicative of islet graft
function like C-peptide[0.3 ng/ml, reduction of HbA1c,
resolution of severe hypoglycemia episodes and fasting
blood glucose stabilization were retained longer in the most
recent era [20]. Moreover, successful results were recently
reported by numerous European groups: The UK islet
transplantation program achieved graft function in 80 % of
transplanted patients 2 years after the first islet infusion
with a significant reduction in severe hypoglycemic epi-
sodes and the achievement and maintenance of HbA1C
7.0 % in 70 % of the recipients [21]; the teams of Lille
and the Swiss-French GRAGIL Network reached 50 and
75 % insulin independence rate during the 5-year follow-
up, respectively [22, 23]. The strong reduction in the rate of
islet graft loss during the different periods suggests that
new drugs able to improve islet engraftment and survival

26. and to better protect islets from the alloimmune rejection
and recurrent autoimmunity have been developed. Specif-
ically, the era 1999–2006 was dominated by the Edmonton
Protocol consisting in the administration of IL-2 receptor
684 Acta Diabetol (2016) 53:683–691
123
http://www.citregistry.org
http://www.citregistry.org
antagonist (i.e., daclizumab) for induction and a mam-
malian target of rapamycin (mTOR) inhibitor (i.e., sir-
olimus) in combination with a calcineurin inhibitor (CNI,
i.e., tacrolimus) for maintenance immunosuppression. In
the most recent era (2006–2010), the immunosuppressive
regimen shifted to a T cell depleting antibody with or
without a TNF-a inhibitor (i.e., etanercept) administered
peri-transplant [24, 25] and an mTOR inhibitor or an
Fig. 1 Schematic representation of the most promising sources
and the related strategies currently studied in order to obtain a
large amount of
transplantable b cells

27. Table 1 Clinical studies testing safety (Phase 1) and efficacy
(Phase 2) of different sources of insulin-producing b cells
Source of b cells Study
type
Study locations Status
Allogeneic
pancreatic islets
Islets isolated from brain-
dead organ donors
Clinical
routine
Every hospitals performing pancreatic islet
transplantation
Xenogeneic
pancreatic islets
Neonatal pig islets Phase 1/2 Hospital Infantil de Mexico,
Mexico Completed, [45]
Xenogeneic
pancreatic islets

28. Neonatal pig islets Phase 1/2 Third Xiangy Hospital, China
Completed, [46]
Xenogeneic
pancreatic islets
Neonatal pig islets Phase 1/2 Hospital Interzonal General de
Agudos Eva Peron
Buenos Aires, Argentina, and Centre for Clinical
Research and Effective Practice Auckland, New
Zealand
Completed, results not
yet published
ESC-derived insulin-
producing cells
Human ESC-derived
insulin-producing cells
Phase 1/2 University of California, San Diego, USA, and
University of Alberta Hospital, Alberta, Canada
Ongoing
Acta Diabetol (2016) 53:683–691 685

29. 123
inosine monophosphate dehydrogenase inhibitor (IMPDH,
i.e., mycophenolic acid) combined with a CNI for the
maintenance therapy [26, 27]. Besides, an efficient protocol
of induction based on the use of alemtuzumab for lym-
phocyte depletion was associated with promising longer-
term function [28]. Moreover, a CNI-free immunosup-
pressive schedule was reported [29]. Finally, in the most
recent years the field moved in the direction of finding new
biologics with a lower islet cell and organ toxicity profiles:
Drugs that target co-stimulation pathways in immune cells
and/or adhesion molecules such as LFA-1, CTLA4-Ig, PD-
1/PD-L1 and CD40 [30–32] or chemokine receptors
(CXCR1/2) [33] have been tested in preclinical models and
clinical trials. Remarkably, the increasing success in the
clinical outcome underlines that improvements made in the
last decades allowed to reach results closed to that obtained

30. with whole pancreas transplantation [34]. At present,
however, the lack of pancreas from heart-beating brain-
dead donors, the only suitable source of human islets for
clinical use until now, strongly limits the broad application
of islet transplantation as a standard procedure. Many
approaches aimed to find alternative sources of b cells are
currently intensively investigated, in particular xenogeneic
islets, immortalized b cell lines and stem cells able to
differentiate into insulin-producing b cells.
b Cell replacement with xenogeneic pancreatic islets
Using pancreatic islets derived from other species seems an
obvious way of providing the large amount of islets
required for transplantation therapy. Most effort in this area
has been directed toward the use of pig islets for many
reasons: (1) Pig insulin can efficiently substitute human
insulin because they differ by only one amino acid; (2)
porcine islets regulate glucose levels in the same physio-
logic range as humans; (3) high yields of islets can be
obtained with techniques established for human islet iso-

31. lation and (4) pigs can be genetically modified for making
their islets more suitable for the transplantation in humans
[35]. One of the first clinical attempts made in 1994 by
Groth et al. [36] who transplanted fetal pig islet-like cell
clusters in T1D patients proved that porcine pancreatic
endocrine tissue can survive in humans although the clin-
ical benefit in these patients was barely detected. However,
two main problems have limited the use of pig islets in
humans: (1) the risk of an hyperacute immunologic rejec-
tion, because humans have natural preformed antibodies
reacting to galactose-a1,3-galactose (Gal), a saccharide
expressed on cells of lower mammals but not on cells of
humans or monkeys [37] and (2) the risk of zoonosis,
because porcine endogenous retroviral (PERV) sequences
can infect several human cells in vitro and may be acti-
vated after the xenotransplant [38]. Promising findings
coming from the transplantation of pig islet transplantation
in the NHP (non-human primate) model provided the
rationale for continued development of islet xenotransplant

32. as a potential treatment option for T1D. Indeed, funda-
mental studies in NHP reported the long-term survival of
neonatal [39] or adult [40] porcine islets in the presence of
immunosuppression therapy. Besides, a recent study pro-
vided evidences that islets isolated from miniature pigs
infused in diabetic NHP engrafted and maintained nor-
moglycemia for more than 6 months in 4 out of 5 recipients
with low-dose immunosuppressive therapy and adoptive
transfer of expanded autologous regulatory T cells [41].
Moreover, in order to overcome the issue of the immuno-
genicity, genetically engineered pigs have been developed
and some groups have reported variable survival gains
using multiple genetically engineered pig islets trans-
planted in NHP [42, 43]. Another strategy currently studied
to avoid immunosuppression consists in islet microencap-
sulation: Islets can be enveloped within a biocompatible
membrane and isolated from the host immune system [44].
The promising results in the preclinical studies using the

33. stringent pig-to-NHP model [45] and the case report of
long-term function of encapsulated neonatal pig islets
transplanted in a diabetic patient without immunosuppres-
sion [46] paved the way for pursuing the potentiality of
islet xenotransplantation in extensive clinical studies. The
first clinical trial was performed in Mexico co-transplant-
ing neonatal pig islets with Sertoli cells in subcutaneous
collagen-covered device in 12 patients with T1D in the
absence of immunosuppression, but showed disappointing
results [47]. In China, transplantation of neonatal pig islets
in 22 T1D subjects treated with a multiple drug immuno-
suppressive regimen resulted in negligible clinical benefit
[48]. Other clinical trials have been currently undertaken
by Living Cell TechnologiesTM in New Zealand: They
performed phase 1/2 clinical trials in Russia, Argentina
and New Zealand (clinicaltrial.gov: NCT01739829,
NCT01736228, NCT00940173). Neonatal pig islets
encapsulated in alginate microcapsules (DIABECELL�)

34. were transplanted in T1D patients, and their findings are
expected to be published imminently. To date no subject, to
our knowledge, has been rendered insulin independent with
such approaches. In summary, encouraging results in pro-
longed graft survival and data concerning the safety of
transplanted pig islets have recently been obtained and,
although several concerns are still waiting for being
addressed, this strategy may represents a therapeutic
alternative in the near future.
b Cell replacement with expanded b cells
Unlike blood, skin or intestine, that are tissues with a rel-
atively rapid turnover of cells, b cells in the pancreatic
686 Acta Diabetol (2016) 53:683–691
123
islets are a quiescent population with a proliferative ratio of
0.1–0.3 %/day in 1-year-old mice [49] and negligible
proliferation, except for the first years after birth or during

35. pregnancy, in humans [50]. During the past 30 years, many
attempts have been made to generate human b cell lines
from many pancreatic sources, but insulin production by
these cells was extremely low or limited at few passages
[51, 52]. In 2005, Narushima et al. [53] reported the suc-
cessful establishment of a functional human b cell line,
NAKT-15, that looked promising for cell therapy of dia-
betes, but no new reports on the utility of this cell line have
been published since then. In 2011 another human b cell
line was established transducing human fetal pancreas with
a lentiviral vector that expressed SV40LT and human
telomerase reverse transcriptase (hTERT). One of the cell
lines generated with this strategy, the EndoC-bH1, was
further characterized and resulted able to secrete insulin in
response to glucose stimulation, was stable at least for 80
passages and expressed many specific b cell markers,
without any substantial expression of markers of other
pancreatic cell types [54]. In view of clinical use, a second
generation of human b cell lines has been recently devel-
oped; the conditionally immortalized EndoC-bH2 cell line
is based on Cre-mediated excision of the immortalizing

36. transgenes, leading to an arrest of cell proliferation and
pronounced enhancement of b cell-specific features such as
insulin expression, content and secretion [55], but further
studies are required to determine the actual safety of these
cells.
b Cell replacement with stem cell-derived b cells
Currently, many opportunities for the cell therapy of sin-
gle-cell disorders like T1D are offered by stem cell dif-
ferentiation. Stem cells are, by definition, undifferentiated
cells that hold both the potential to differentiate into a large
variety of specialized cell types and the ability to go
through numerous cycles of cell division while maintaining
their undifferentiated state (self-renewal). The first
attempts focused on adult stem cells because many tissues
offered the possibility to derive progenitor cells able to
differentiate into pancreatic b-like cells, but until now none
of the sources analyzed has proved able to produce ‘‘true’’
b cells capable of secreting insulin in response to glucose
and normalizing glycemia in diabetic animal models [56].
So far, the most promising source of cells for cell/organ

37. replacement therapies is pluripotent stem cells.
Embryonic stem cells
Because of their self-renewal abilities and the capacity to
differentiate into any cell of the body, embryonic stem cells
(ESC) have always been considered the most auspicious
source for cell replacement therapies. In fact, the devel-
opment of ESC lines from the inner cell mass of early stage
human embryos [57] offered the potential to generate any
specialized cell type in large quantities, including insulin-
producing cells. Novocell, a preclinical-stage stem cell
engineering company focused on diabetes, that in 2010
changed its name into ViaCyte, developed a differentiation
protocol of human ESC into b cells, designed along the
lines of pancreatic organogenesis in vivo. This protocol
brought ESC through subsequent stages on the desired
path: from definitive endoderm to posterior foregut, then to
pancreatic endoderm, progenitors of endocrine pancreas
and, finally, to hormone-producing endocrine cells. With

38. their five-step differentiation protocol, ViaCyte succeeded
in obtaining about 7 % of cells that expressed high levels
of proinsulin that was processed, albeit inefficiently, to
insulin and C-peptide [58]. Two other groups, using dif-
ferent culture conditions, confirmed that ESC are able to
differentiate in insulin-producing cells, albeit with a lower
efficiency [59, 60]. Subsequently, Baetge and colleagues
improved their results optimizing their differentiation
protocol and transplanting ESC-derived pancreatic pro-
genitor cells into mice such that after 3 months in vivo the
implanted cells differentiate into mature endocrine cells
that can regulate blood glucose levels after diabetes
induction [61]. The same group recently developed a
scalable and standardized system for the production of
functional pancreatic progenitors from human ESC, further
optimizing their differentiation protocol for the CyT49
ESC line [62]. Finally, on October 29, 2014, ViaCyte
announced the beginning of a phase 1/2 clinical trial

39. (clinicaltrial.gov: NCT02239354) and that the first patient
of this study was successfully implanted with ESC-derived
insulin-producing cells delivered under the skin in a pro-
prietary device with a selectively porous cell-impermeable
membrane, called the Encaptra� drug delivery system; this
device is designed to protect the implanted cells from
possible immune rejection, to permanently contain the cells
and prevent their distribution away from the implantation
site. This is the first time that an ESC-derived cell
replacement therapy for diabetes is studied in human sub-
jects, and it represents the culmination of a decade of effort
by the ViaCyte team (http://viacyte.com). Meanwhile,
modified or improved protocols have been established
using combinations of cytokines and small molecules, such
as fibroblast growth factors, sonic hedgehog pathway
inhibitors (KAAD-cyclopamine or SANT-1), retinoic acid,
nicotinamide, protein kinase C (PKC) activator (indolac-
tam V) or TGF-b pathway inhibitors (Alk5 inhibitor, dor-
somorphin or noggin) [63–65]. Noteworthy are in

40. particular the directed differentiation strategies reported by
the research units of Melton and Kieffer [66, 67]. These
two groups reported an efficient approach to generate
Acta Diabetol (2016) 53:683–691 687
123
http://viacyte.com
in vitro 20–50 % insulin (C-peptide)-positive cells from
human ESC. Upon transplantation into immunocompro-
mised mice, the graft (composed of endocrine and ductal
cells) restored normoglycemia within 2 [66] or 6 weeks
[67], a tremendous improvement compared with the 2- to
3-month period required after transplantation of ESC-
derived pancreatic progenitors [61]. Nevertheless, the
similarities and differences between b-like cells generated
by all these groups remain to be elucidated by a direct
comparison. Despite significant successes, three main
problems still limit the use of ESC-derived insulin-pro-
ducing cells. First, due to their pluripotency, undifferenti-

41. ated cells give rise to teratoma formation in vivo and the
transplantation of unselected differentiated cells would
inevitably lead to tumorigenesis because of the presence of
some residual undifferentiated cells [61]; several attempts
have been made to identify surface markers able to select
pancreatic progenitor cells [68, 69], but the safety of the
selected cells requires further investigation. Another
unsolved problem is related to the evidence that each ESC
line has a different propensity to give rise to pancreatic
cells [70]. Therefore, many cell lines have to be tested
(and, accordingly, the differentiation protocol must be
optimized) in order to identify a set of ESC lines that could
facilitate genetic matching of donor cells to patients and
therefore prevent graft rejection and lifelong immunosup-
pression. The last major problem, which greatly limits the
use of ESC in many countries of the world, is the presence
of ethical concerns regarding the destruction of human
embryos for the production of these cell lines.

42. Induced pluripotent stem cells
To overcome these obstacles and still obtain pluripotent
cells, the group of professor Yamanaka (winner of the
Nobel Prize in 2012 for this discovery) succeeded in 2006
in reprogramming adult somatic murine cells into induced
pluripotent stem cells (iPSC) through the forced expression
of 4 genes (OCT4, SOX2, KLF4 and c-Myc) [71]. One
year later, Yamanaka’s and two other groups have suc-
cessfully repeated the reprogramming process using human
somatic cells [72, 73]. Mouse and human iPSC resulted
highly comparable to ESC as these cells showed the same
morphology, the same proliferative capacity, had similar
telomerase activity, a normal karyotype, expressed surface
markers and genes that characterize ESC and were also
able to form teratomas in vivo and to differentiate into cells
of all three germ layers in vitro [71, 73].
Several strategies to differentiate iPSC into cells capable
of producing insulin have been tested, with original pro-

43. tocols or borrowing the experience from ESC. The first
paper that reported successful differentiation of human
iPSC into insulin-secreting cells dates back to 2008, when
the group of Zhang adapted the four-step differentiation
protocol developed for ESC from Jiang et al. [60] and
obtained for the first time b-like cells in vitro from repro-
grammed human fibroblasts. Unfortunately, the efficiency
of differentiation process was very low and the total
C-peptide content was significantly lower compared to
adult b cells [74]. Subsequent studies focused on the cul-
ture conditions in order to increase the efficiency of dif-
ferentiation of the iPSC into insulin-secreting cells; for
example, in 2010 the group led by Yupo Ma applied a
protocol previously successful for murine ESC [75] to
iPSC derived from adult mouse fibroblasts. With this dif-
ferentiation protocol, they were able to obtain up to 50 %
of cells capable of secreting insulin in response to glucose
stimulus from murine iPSC and, if transplanted into dia-
betic mice, these cells were capable to restore normo-

44. glycemia [76]. It remains to be confirmed whether the same
differentiation protocol could have the same efficiency in
differentiating human iPSC. One year later, it was reported
the differentiation of human iPSC into insulin-secreting
cells responsive to glucose using a protocol that requires
the addition, compared to ViaCyte one, of two molecules:
indolactam V [63] and GLP-1. The differentiation effi-
ciency was very low, as only 1.29 % of insulin positive
cells were obtained, and their ability to secrete insulin
in vivo has not been verified [77]. Encouraging results have
been reported by other several in vitro studies that used
protocols mimicking the mechanism of in vivo pancreas
development to guide the differentiation of iPSC into b-
like cells [78–82] but with a lower efficiency compared to
ESC. Insulin-producing cells, although with low efficiency,
were also generated with iPSC derived from the repro-
gramming of fibroblasts of two patients with diabetes [83],
opening the way not only to autologous cell replacement

45. therapy of T1D, but also to in vitro modeling of this dis-
ease. Last year two important groups described for the first
time that pancreatic cells derived from the differentiation
of pluripotent stem cells (both embryonic and induced) are
capable to revert diabetes in mice [66, 67]. The Melton’s
group, in particular, described a 4- to 5-week in vitro dif-
ferentiation protocol which involves a combination of
sequential culture steps using factors that affect signaling
in numerous pathways, including signaling by WNT,
activin, hedgehog, TGF-b, retinoic acid and c-secretase
inhibitors, and leads to the generation of *50 % of
C-peptide and Nkx6.1 double-positive cells from both ESC
and iPSC [66]. These results brought to the foundation of a
company, called Semma Therapeutics (http://www.semma-
tx.com/), focused on the development of an ESC- or iPSC-
based therapy for diabetes.
In conclusion, iPSC retain the same essential properties
of ESC, included the ability to differentiate into b cells, but
offer the advantage of allowing the generation of
688 Acta Diabetol (2016) 53:683–691

46. 123
…
ECN_601_Economics: Exam 2 Formula sheet
Topic 4: Price Discrimination
Relationship between price, revenue, and elasticity is given by
, the Lerner’s index, Current Margin of Price
, the inverse price elasticity of demand, Desired Margin of Price
P – Selling price of a good or a service
MC – cost of producing an additional good or a service
Topic 6: Labor Markets
Profit = TR – TC
Marginal Revenue Product of Labor
=
∆TR – change in the total revenue due to change in total
productivity
∆L – change in labor (units)
MRP = MR (L) * MP (L)
= and =
MRP (L) = * =

47. Marginal Factor Cost of Labor
=
∆TC – change in the total cost due by hiring an additional unit
of labor. This is the wage paid by hiring an additional unit of
labor.
∆L – change in labor (units)
Average Product of labor
APL =
Topic 7: Uncertainty and Decision Making
Expected Value or Expected Monetary Value or Expected
Benefits is given by
EV =
i – 1, 2, n
X – Random variable which can have ‘n’ number of values, (1,
2, .n)
P – Probability associated with each random variable, (P1,
P2…... Pn)
For example,
EV =
Where,
Difference-in-Difference Estimate
Pre-change
Post-Change
First Difference
Treatment Group
X11
X12
∆X = X12 –X11
Control Group
Y11
Y12
∆Y = Y12 –Y11
Second Difference

48. DID = ∆X - ∆Y