2. Acme Pharmaceutical Company discovers a vaccine that prevents thecommon cold and has a patent that grants it a monopoly on thisdrug. Acme has plants in both the North America and Europe andcan manufacture the drug on either continent at a marginal cost of$10. Assume there are no fixed costs. In Europe, the demand for thedrug is QE = 70 PE, where QE is the quantity demanded when theprice in Europe is PE. In North America the demand for the drug isQN = 110 - PN, where QN is the quantity demanded when the pricein North America is PN(a) Determine the aggregate demand function for the combined mar-ket. Determine the inverse demand function for the combinedmarket and the inverse demand functions for each of the two mar-kets separately.(b) To begin, assume that it is illegal for the firm to price discriminate,so that it can charge only a single price P on both continents.What price will it charge, and what profits will it earn?

A monopoly firm operates in 2 markets:North AmericaEuropeCostsMC=$10No Fixed CostsDemand functionsQE…

Acme Pharmaceutical Company discovers a vaccine that prevents the common cold and has a patent that grants it a monopoly on this drug. Acme has plants in both the North America and Europe and can manufacture the drug on either continent at a marginal cost of $10. Assume there are no fixed costs. In Europe, the demand for the drug is QE = 70 - PE, where QE is the quantity demanded when the price in Europe is PË. In North America the demand for the drug is 110 PN, where QN is the quantity demanded when the price in North America is PN QN = (a) Determine the aggregate demand function for the combined mar- ket. Determine the inverse demand function for the combined market and the inverse demand functions for each of the two mar- kets separately. (b) To begin, assume that it is illegal for the firm to price discriminate, so that it can charge only a single price P on both continents. What price will it charge, and what profits will it earn?

Acme Pharmaceutical Company discovers a vaccine that prevents the common cold and has a patent that grants it a monopoly on this drug. Acme has plants in both the North America and Europe and can manufacture the drug on either continent at a marginal cost of $10. Assume there are no fixed costs. In Europe, the demand for the drug is QE = 70 - PE, where QE is the quantity demanded when the price in Europe is PË. In North America the demand for the drug is 110 PN, where QN is the quantity demanded when the price in North America is PN QN = (a) Determine the aggregate demand function for the combined mar- ket. Determine the inverse demand function for the combined market and the inverse demand functions for each of the two mar- kets separately. (b) To begin, assume that it is illegal for the firm to price discriminate, so that it can charge only a single price P on both continents. What price will it charge, and what profits will it earn?

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Monopoly

Section: Chapter Questions

Problem 12PA

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