A monopoly drug company sells its product in two countries, where it faces the following linear demand curves: Q1 = 14 – 2p1 Q2 = 10 – p2 The firm faces a constant marginal cost of £1 per unit and no fixed cost. a)Assuming the firm can price discriminate across both markets, calculate the profit maximising price, output level in each market, and total profits. b)Use diagrams to illustrate the firm's demand, marginal revenue, marginal costs and profit- maximising decision in part (a).

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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A monopoly drug company sells its product in
two countries, where it faces the following linear
demand curves: Q1 = 14 – 2p1 Q2 = 10 – p2 The
firm faces a constant marginal cost of £1 per unit
and no fixed cost.
a)Assuming the firm can price discriminate
across both markets, calculate the profit
maximising price, output level in each market,
and total profits.
b)Use diagrams to illustrate the firm's demand,
marginal revenue, marginal costs and profit-
maximising decision in part (a).
c)Now assume that the firm cannot prevent one
country from reselling the product to the other.
Calculate the firm's profit maximising price,
output level and total profits.
d)Use diagrams to illustrate the firm's demand,
marginal revenue, marginal costs and profit-
maximising decision in part c).
e)Calculate efficiency loss associated with the
firm decision in part (a) and part (c).
Transcribed Image Text:A monopoly drug company sells its product in two countries, where it faces the following linear demand curves: Q1 = 14 – 2p1 Q2 = 10 – p2 The firm faces a constant marginal cost of £1 per unit and no fixed cost. a)Assuming the firm can price discriminate across both markets, calculate the profit maximising price, output level in each market, and total profits. b)Use diagrams to illustrate the firm's demand, marginal revenue, marginal costs and profit- maximising decision in part (a). c)Now assume that the firm cannot prevent one country from reselling the product to the other. Calculate the firm's profit maximising price, output level and total profits. d)Use diagrams to illustrate the firm's demand, marginal revenue, marginal costs and profit- maximising decision in part c). e)Calculate efficiency loss associated with the firm decision in part (a) and part (c).
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