7. (9 points) A pharmaccutical company with exclusive patent control over the ne

Question

7. (9 points) A pharmaccutical company with exclusive patent control over the new miracle flu drug can sell its output in two different countries, with demands as follows (not drawn to scale): 10 500 Q 1000 Q Which country do you think has higher per capita income? Why do you think so? a. b. Calculate the elasticity of demand at Q 200 for each country. If the monpolist's TC prices will it charge in cach market? Draw a graph (or add to the ones give above) to illustrate your answer. c. 0.50Q + 360, what quantities will it sell and what

Explanation / Answer

a) Country B because its willingness to pay is more than that of country A. The maximum price is 10 in country B and the demand is also higher.

b) The demand functions are QA= 500 - 500PA and QB = 1000 - 100PA or PA = 1 - 0.002QA and PB = 10 - 0.01QB

When QA = 200, PA = 0.6

When QB = 200, PB = 8

Elasticity of demand in A = slope of demand x P/Q = -500x0.6/200 = -1.5

In B, ed = -100 x 8/200 = -4

c) MC = 0.5. Marginal revenue MR in A = 1 - 0.004QA

Find the price and quantity in A

1 - 0.004QA = 0.5

QA = 125 and PA = 0.75

In market B, MR = 10 - 0.02QB

0.5 = 10 - 0.02QB

QB = 475, PB = 5.25.

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.