Problem 4. Pharmaceutical company pricing (25 points). A pharmaceutical company faces the following demand function for one of its products in the American market: = 2,000,000 20,000 where QA is the number of prescriptions sold in the American market annually and PA is the price per prescription. The firm's annual total cost function when producing for the American market is: = 40,000 + 5 The company is considering also entering the Brazilian market where the demand for the pharmaceutical is: = 200,000 3,000 The total cost function for the Brazilian market is: = 1,000,000 + 5

a. Calculate the firm's optimal price in the US. Show your work. b. What is the optimal price to charge in the Brazilian market? Show your work. c. What is the own-price elasticity of demand at the profit-maximizing price in the two countries? d. Do your findings in a. and b. (price in each market) and in c. (own-price elasticity in each market) confirm what we learned in class about elasticities and price discrimination? e. Explain why the problem of parallel imports, a form of arbitrage, may result from the pricing structure you have calculated in the previous questions. [A quantitative answer is not required.]