Hence in this context free entry leads to excess entry 3 5 Consider a US

Hence in this context free entry leads to excess

This preview shows page 3 - 5 out of 5 pages.

Hence, in this context, free entry leads to excess entry. 3
Image of page 3
5. Consider a U.S. pharmaceutical °rm with a patented drug that is sold in both the U.S. and Canada. In the U.S., market demand is given by Q U ( p ) = 104 ° 2 p . In Canada, it is Q C ( p ) = 66 ° 3 p . The drug can be produced and sold in either country at a marginal cost of 2. All prides/costs are measured in U.S. dollars. (a) Suppose the °rm can price discriminate by charging di/erent prices in each country (assume ar-bitrage is impossible).Assuming the °rm maximizes pro°t, what prices will be charged in eachcountry? What pro°t does the °rm obtain? What is the consumer surplus in each country?
Image of page 4
Image of page 5

You've reached the end of your free preview.

Want to read all 5 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture