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Q3. A monopoly drug producer with a constant marginal cost (and average cost) of MC = 1 sells in only two countries and faces a linear demand curve of Q1 = 122 p1 incountry l and Q2=9-p2incom1try2. (Use the graph to aid your computations). Suppose resale across borders is banned so that price discrimination is possible: a) Determine the prot-maximizing price that the monopoly sets in each country (8 points) b) Using the values of p1 and p2 you computed in part (a) above nd the elasticity of demand in country 2 given that elasticity of demand in country 1 is |-1.4|. c) Suppose now resale across borders is possible so that price discrimination is impossible: (i) What is the monopoly's equilibrium price and aggregate output? (10 points) (ii) How much of the total output does the monopoly sell in each market? (4 points) Answer: a) If the monopoly can price discriminate, it sets a monopoly price in each country as follows: Country 1 Country 2 Prot max rule: Quantity Q1 = Q2 = Price p1 = p2 = 'I