Acme Pharmaceutical Company discovers a vaccine that prevents the common cold and has a patent that grants it a monopoly on this drug. Acme has plants in both the North America and Europe and can manufacture the drug on either continent at a marginal cost of $10. Assume there are no fixed costs. In Europe, the demand for the drug is QE = 70 – Pë, where Që is the quantity demanded when the price in Europe is PE. In North America the demand for the drug is QN 110 – PÑ, where Qŉ is the quantity demanded when the price in North America is PN E N = (a) Determine the aggregate demand function for the combined ma ket. Determine the inverse demand function for the combined market and the inverse demand functions for each of the two mar- kets separately. (b) To begin, assume that it is illegal for the firm to price discriminate, so that it can charge only a single price P on both continents_ What price will it charge, and what profits will it earn?

Acme Pharmaceutical Company discovers a vaccine that prevents the common cold and has a patent that grants it a monopoly on this drug. Acme has plants in both the North America and Europe and can manufacture the drug on either continent at a marginal cost of $10. Assume there are no fixed costs. In Europe, the demand for the drug is QE = 70 – Pë, where Që is the quantity demanded when the price in Europe is PE. In North America the demand for the drug is QN 110 – PÑ, where Qŉ is the quantity demanded when the price in North America is PN E N = (a) Determine the aggregate demand function for the combined ma ket. Determine the inverse demand function for the combined market and the inverse demand functions for each of the two mar- kets separately. (b) To begin, assume that it is illegal for the firm to price discriminate, so that it can charge only a single price P on both continents_ What price will it charge, and what profits will it earn?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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