Price Discrimination You are a successful biochemist, owner and director of the pharmaceutical laboratory. Suppose the...

Price Discrimination

You are a successful biochemist, owner and director of the pharmaceutical laboratory.

Suppose the government granted you a patent for a medicine that you created from the petals of a flower.

According to a market study, you have identified the most promising buyers in the Country A and Country B markets.

According to estimates, the demands for your product would be:

In Country A: P = 50 - 0.5q

In Country B: Q = 200 - 3p

where the quantities are measured in thousands of pills and the price in $us. Per pill.

If you have a single production plant that operates according to the following cost structure:

TC = 150 + (3/8)q

a. If you have the power to apply third degree discrimination, calculate the quantities that you must produce for each market and the price at which you should sell them. In which country can you sell your product at a higher price? Why? Justify your answer mathematically.

b. What is the profit it would generate?

c. Show that the benefit in part b is greater than the benefit you would get if you couldn't apply any type of discrimination.

NOTE: first, identify the TOTAL demand you face, without applying price discrimination.

Solutions

Expert Solution

More quantity should be sold at country B where price is higher 33.52>25.18.

Profit with price discrimination is 4386.409

Rahul Sunny answered 1 year ago

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