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).

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).

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.1P

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