Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose a monopoly drug manufacturer faces the following inverse demand curves for its product in two different countries 1 and 2. Inverse demand curve in

Suppose a monopoly drug manufacturer faces the following inverse demand curves for its product in two different countries 1 and 2.

Inverse demand curve in country 1: p1 = 200 - Q1

Inverse demand curve in country 2: p2 = 180 - 0.5Q2

where pi and Qi denote price and quantity sold in country i respectively and i = 1, 2. The monopolist's cost function is given by

c(Q) = 0.25Q2

where Q = Q1 + Q2. Assume that resale between the countries is not possible and the monopolist maximizes profits.

(a) Find p1 and p2 that maximizes monopolist's profits

(b) Suppose the monopoly drug manufacturer in (a) faces a capacity constraint of 130 units. That is, Q1 + Q2 = 130. What price will the monopolist charge in country 1? What price will the monopolist charge in country 2?

(c) Suppose there are no capacity constraints, but unlike in parts (a) and (b), price discrimination is not allowed. That is, the monopolist cannot charge two different prices in countries 1 and 2. Find the unique price that maximizes monopolist's joint profits (i.e., the sum of profits in the two countries).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

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

The Economics Of The Sulphur Industry

Authors: Jared E Hazleton

1st Edition

1317353927, 9781317353928

More Books

Students also viewed these Economics questions

Question

1. Why do we trust one type of information more than another?

Answered: 1 week ago