Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A pharmaceutical firm receives approval for marketing a drug in country A and country B. The demand function for this drug in countries A and

A pharmaceutical firm receives approval for marketing a drug in country A and country B. The demand function for this drug in countries A and B are p=84-2xand p=124-3xrespectively, where pis the price of a prescription drug and xis the quantity of the prescription drug demanded by patients. Assume that pharmaceutical markets in country A and country B are spatially separated and that parallel trade (i.e., consumers in country A purchasing drugs from country B, where the price of the drug is lower) is completely prohibited by the government. For simplicity, assume that there are no transportation costs and that the marginal cost of producing an additional pill of the drug is $4 in country A and $8 in country B.

a) Determine the optimal price and quantity for this pharmaceutical product in country A and in country B if the firm seeks to maximise profits. (7 marks)

b) Calculate the price elasticity of demand for drugs in country A and country B under such optimal pricing. (7 marks)

c) Compare the relationship between the optimal price and the price elasticity between the two countries. (6 marks)

Step by Step Solution

3.43 Rating (162 Votes )

There are 3 Steps involved in it

Step: 1

a To determine the optimal price and quantity for the pharmaceutical product in country A and country B we need to maximize the firms profits Profit maximization occurs when marginal revenue MR equals ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Marketing And Export Management

Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr

8th Edition

1292016922, 978-1292016924

More Books

Students also viewed these Economics questions

Question

What is the biggest strength of the program?

Answered: 1 week ago