Question

2. Suppose that BioNTech discovers a vaccine that cures a disease. BioNTech has laboratories in both the United States and Germany and can manufacture the vaccine on both countries with the following total cost function:

?(?) = 10?

where ? = ?1 + ?2. In Germany and the United States, the demand functions for the vaccine are ?1 = 70 − ?1 (Germany) ?2 = 110 − ?2 (The United States)

a) If the firm can practice third-degree price discrimination, what price should it set on each country to maximize its profit? How many vaccines will it sell in each country? What will be its maximum profit under the third-degree price discrimination?

b) Assume now that practicing third-degree price discrimination is illegal in both countries. So, the firm can charge only a single price (? ?) on both countries. Calculate its profit-maximizing price-quantity combination and the maximum profit.

c)Calculate the deadweight loss under the third-degree price discrimination.

Answer 1