A new drug is developed. Ignore Research and development costs. Below is the yea
ID: 1210040 • Letter: A
Question
A new drug is developed. Ignore Research and development costs. Below is the yearly demand for the new drug in both the United States and Canada. The marginal cost is also provided.
P= 100 -2Q (1) Demand USA
P= 70 -4Q (2) Demand Canada.
MC= 10 (3) marginal cost curve
3. While under patent, solve for the price and quantity in each country if the monopoly supplier engages in two tier price discrimination but it is possible to import/export. There will be one price.
4.While under patent, solve for the price and quantity in each country if the monopoly supplier engages in two tier price discrimination but it is possible to import/export. Furthermore, assume that in Canada, the government sets price at $15. Thank you very much! Please provide calculation process!
Explanation / Answer
3) If its possible to export import
Demand in USA = 100 - 2Q1
demand in canada = 70 - 4Q2
Total demand = 100 - 2Q + 70 - 4Q
P = 170 - 6Q
Revenue = Price X quantity demanded
Revenue = ( 170 - 6Q)Q
Marginal revenue = 170 - 12Q
The quantity at which the monopoly firm will sell is found by equating marginal revenue and marginal cost
170-12Q = 10
12Q = 160
Q = 13.33
Price = 170 - 6Q
Price = $ 90
4) Revenue in US = (100-2Q)Q
Marginal revenue in US = 100 - 4Q
Revenue in canada = (70-4Q)Q
Marginal revenue in canada = 70 - 8Q
Quantity in USA :
100 - 4Q =10
4Q = 90
Q = 22.50 units
Price is USA = 100 - 2Q
Price in USA = $ 55
Quantity in Canada :
70 - 8Q = 10
60 = 8Q
Q = 7.50
Price in canada = 70- 4Q
Price in canada = $ 40 .
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