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Determining the optimal price levels

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Say there is a market for a certain drug consists of domestic (United States) consumers and foreign consumers. The drug's marginal cost is constant at $5 per dose. The demand schedules for both regions are as follows:
US Foreign
Price Quantity Quantity
$60 1,000 200
55 1,500 250
50 2,500 400
45 4,000 600
40 8,000 1,000
35 14,000 2,000
30 20,000 3,500
25 30,000 7,000
20 40,000 16,000
15 55,000 35,000
10 65,000 75,000
5 77,000 150,000

- If the markets cannot be separated, what is the marginal revenue for the quantities that you can determine? What price should be charged to maximize profit?
- If the markets can be separated, determine the marginal revenues in each market. If the drug company must set a single price for the drug in each market, what price should be charged in the foreign market? In the domestic market?

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Solution Summary

Solution depict the steps to determine the optimal price levels in the given cases.

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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