A pharmaceutical fi rm faces the following monthly demands in the U.S. and Mexican markets for one of its patented drugs:

QUS

= 300,000 − 5,000 PUS and QX

= 240,000 − 8,000 PX

where quantities represent the number of prescriptions. Assume that resale or arbitrage among markets is impossible and that marginal cost is constant at $2 per prescription in both markets. Monthly fi xed costs are $1 million in the United States and $500,000 in Mexico.

(a) Draw the demand, marginal revenue, and marginal cost curves for each market. Esti mate the profi t-maximizing prices and quantities graphically and/or determine the solutions algebraically. What are the fi rm’s total profi ts?

(b) Determine the quantity in each market and maximum possible total profi ts if the fi rm engages in perfect (fi rst degree) price discrimination. Is this behavior possible?