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.