2. Acme Pharmaceutical Company discovers a vaccine that prevents thecommon cold and has a patent that grants it a monopoly on thisdrug. Acme has plants in both the North America and Europe andcan manufacture the drug on either continent at a marginal cost of$10. Assume there are no fixed costs. In Europe, the demand for thedrug is QE = 70 - PE, where QE is the quantity demanded when theprice in Europe is PE. In North America the demand for the drug isQN 110 PN, where QN is the quantity demanded when the pricein North America is PN= (d) Calculate total surplus, which is consumer plus producer sur-plus/profits, under each scenario b) and c). Will total surplus behigher with price discrimination or without price discrimination?Will the firm sell the drug on both continents in both scenarios?(e) Consider the problem with the following change. Suppose thedemand for the drug in Europe declines to QE = 30 - PE. If thefirm cannot price discriminate, now will it be in the firms interestto sell on both continents?(f) Say now that the patent on the vaccine expires and generic manu-facturers can enter the market and produce the drug at the samemarginal cost. Assume that there are many generic drug compa-nies, and that competition is very high. What will be the equilib-rium price of the drug in this case? Compute total consumer andproducer surplus/profits in both markets in this case and compareit to d). Comment on the differences.

A monopoly firm operates in 2 markets:North AmericaEuropeCostsMC=$10No Fixed CostsDemand functionsQE…

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 - PE, where Qe is the quantity demanded when the price in Europe is PE. In North America the demand for the drug is 110 — PN, where QN is the quantity demanded when the price in North America is PN E QN =

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 - PE, where Qe is the quantity demanded when the price in Europe is PE. In North America the demand for the drug is 110 — PN, where QN is the quantity demanded when the price in North America is PN E QN =

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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