Suppose that a pharmaceutical firm receives approval for marketing a drug in country A and country..

Suppose that a pharmaceutical firm receives approval for
marketing a drug in country A and country B. The demand functions for this drug
in countries A and B are p = 84 –2 x and p = 124 –3 x, respectively, where p is
the price of a prescription drug and x is the quantity of the prescription drug
demanded by patients. Assume that pharmaceutical markets in country A and
country B are spatially separated and parallel trade is completely prohibited
by the government. For simplicity, assume that there are no transportation
costs and the marginal cost of producing an additional pill of drugs is
constant at US$4, that is, MC = 4. a. Determine the optimal price for this
pharmaceutical product in country A and country B if the firm seeks to maximize
profit. b. Calculate the price elasticity of demand for drugs in country A and
country B under such optimal pricing. c. Compare the relationship between the
optimal price and the price elasticity between countries A and B. Is your
result consistent with Ramsey optimal pricing?

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