Suppose the market for a certain pharmaceutical drug consists of domestic (United States) consumers and foreign consumers.
Question:
- Suppose the market for a certain pharmaceutical drug consists of domestic (United States) consumers and foreign consumers. The drug’s marginal cost is constant at $5 per dose. The demand schedules for both regions are given below.
US
Foreign
Price
Quantity
Quantity
$60
1,000
200
55
1,500
250
50
2,500
400
45
4,000
600
40
8,000
1,000
35
14,000
2,000
30
20,000
3,500
25
30,000
7,000
20
40,000
16,000
15
55,000
35,000
10
65,000
75,000
5
77,000
150,000
1.) Assuming the markets cannot be separated (and thus the same price must be charged to both regions), what is the marginal revenue for the quantities that you can determine? What price should be charged to maximize profit?
2.) If the markets can be separated, determine the marginal revenues in each market. If the firm must set a single price for the drug in each market (the prices can vary between markets), what price should be charged in the foreign market? In the domestic market? What happens to the company’s profit?
Expert Answer:
Macroeconomics Principles, Applications, and Tools
ISBN: 978-0132555234
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
