A U.S. pharmaceutical company holds a patent on a drug in the U.S. and an analogous patent in Canada. Its marketing department has identified the following inverse demand curves for this drug in the U.S. and Canada:
P us =1,000 - Qdus and P can =500 - Qdcan
The marginal revenues for each market is given by the following:
MRus =1,000 - 2Qus and MRcan =500 - 2Qcan
The firm's cost of producing this drug is given by the following function:
TC = 100Q
How do I determine the profits that the drug company makes in the U.S. market, and the profit it makes in the Canadian market? Also, how do I determine the consumer surplus in both the U.S. market and the Canadian market?
For the US: MRus = 100
Or, 1000 - 2Qus = 100
Or Qus = (1000 - 100)/2 = 450
So, Pus = 1000 - 450 = $550
Profit = PusQus = $550*450 = ...
Find the consumer surplus in both the U.S. market and the Canadian market.