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
|
- 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?
- 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?