2. (25 points) Suppose that a drug, Tylenol, is only produced by a pharmaceutical.com- pany, Johnson...

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2. (25 points) Suppose that a drug, Tylenol, is only produced by a pharmaceutical.com- pany, Johnson & Johnson, and there is no substitute for Tylenol. Johnson&Johnson sells Tylenol to both the U.S. and European markets. Demand functions from these two countries are as follows: 31 = 9 - 1 10P1, in the U.S. 1 32 = 12-p, in Europe The total cost of producingy units of Tylenol is C(y) = 100 + 10y. (a) What is the profit-maximizing level of price and output ifJohnson & Johnson sells Tylenol at the same price to both countries? Find the maximized profit too. (b) Suppose that Johnson&Johnson charges different prices in the two countries. Find the profit-maximizing prices and quantities for each country. What is the max- imized profit? Explain why the two prices differ, using the price elasticity of demand. 2. (25 points) Suppose that a drug, Tylenol, is only produced by a pharmaceutical.com- pany, Johnson & Johnson, and there is no substitute for Tylenol. Johnson&Johnson sells Tylenol to both the U.S. and European markets. Demand functions from these two countries are as follows: 31 = 9 - 1 10P1, in the U.S. 1 32 = 12-p, in Europe The total cost of producingy units of Tylenol is C(y) = 100 + 10y. (a) What is the profit-maximizing level of price and output ifJohnson & Johnson sells Tylenol at the same price to both countries? Find the maximized profit too. (b) Suppose that Johnson&Johnson charges different prices in the two countries. Find the profit-maximizing prices and quantities for each country. What is the max- imized profit? Explain why the two prices differ, using the price elasticity of demand.