Managers at the Ridgeway Corporation produce a medical device that they

sell in Japan, Eu rope, and the United States. Transportation costs are negligible

proportion of the product's total costs. The price elasticity of demand for the product

is -4:0 in Japan, -2:0 in the United States, and -1:33 in Europe. Because of legal

limitations, this medical device, once sold to a customer in one country, cannot be

resold to a buyer in another country.

(a) The firm's vice president for marketing circulates a memo recommending that the

price of the device be $1,000 in Japan, $2,000 in the United States, and $3,000 in

Europe. Comment on his recommendations.

(b) His recommendations are accepted. Sales managers send reports to corporate

headquarters saying that the quantity of the devices being sold in the United

States is lower than expected. Comment on their reports.

(c) After considerable argument, the U.S. sales manager agrees to lower the price in

the United States to $1,500. Is this a wise decision? Why or why not?

(d) Can you be sure that managers are maximizing profit? Why or why not?