Global Pharmaceuticals (GP) just completed development of its latestpill for acid reflux.?There are two countries in the world? small wealthy country and a large poor one.?GP estimates the demand for its pill in each of the two countries to be:SMALL WEALTHY COUNTRY???????????ARGE POOR COUNTRYQS? 15 – PS????????????????????????????L? 64 – 32PLwhere QS?and QL?nd the quantities demanded in the small wealthy (S) and large poor (L) countries and PS?nd PL?re the prices of pills in those countries.?GP estimates that the marginal cost of making a pill is $1 (regardless of location).?International laws and other barriers prevent the transport of pills from customers in one country to customers in another.?Answer all the below numerical questions to two decimals.?(Most will be .00)1.?What is GP’s profit-maximizing quantity of pills to supply in the?mall wealthy?ountry?__________2. What is GP’s profit-maximizing price of a pill in the small wealthy country?__________3. What is GP’s total revenue from sales in the small wealthy country??_________4. What is GP’s producer surplus* from sales in the small wealthy country?__________5. What is GP’s profit-maximizing quantity of pills to supply in the?arge poor?ountry??????????????_________6. What is GP’s profit-maximizing price of pills in the large poor country?__________7. What is GP’s total revenue from sales in the large poor country??_________8. What is GP’s producer surplus* from sales in the large poor country?__________9. What is GP’s producer surplus* from total sales?orldwide?Now suppose that public opinion forces GP to sell?ll of its pills at the same price?egardless of location.?Without?P being allowed to price discriminate,?0. What is the profit-maximizing quantity of pills to supply in the world?__________11. What is the profit-maximizing price of pills in the world?__________12.?How many pills will be sold in the small wealthy country?__________13.?How many pills will be sold in the large poor country?__________14.?Without?rice discrimination, the small wealthy country gets _________ (more, fewer) pills?nd the large poor country gets _________ (more, fewer) pills.?5.?Price discrimination was helping the __________________ (small wealthy, large poor) country in the short run* (the time period during which we disregard the effect of price discrimination on the firm’s ability to raise the funds necessary for long-term* investment).Without?rice discrimination,16.?What is GP’s total revenue from sales in the world??_________17. What is the producer surplus from sales in the world?__________NEXT PAGENow, suppose that GP spent $25 on R&D spending to develop the acid reflux pill.18. How much will GP have available for profit and new pill development if they can segment the two markets and sell pills at two different prices?____________19. How much will GP have available for profit and new pill development if they cannot?egment the two markets and must sell pills at the same price in both countries?____________20. In which scenario – segmented markets or one big market – is GP most likely to engage in R&D spending for drug development?_____________________21.?Price discrimination helps?__________________ (the small wealthy country, the large poor country,?oth?ountries) in the?ong run?y enabling pharmaceutical companies to have?_________ (more, less) R&D funds for drug development.Finally, suppose that a shortage of pill ingredients temporarily limits GP’s production of pills to just 16.4 total, worldwide.?GP decides to sell the pills in whichever country (or countries) that nets them the most producer surplus. (GP is aware of possible public backlash but expects it to be small, since heartburn is not immediately life threatening.)??n other words, GP will sell QSpills in the small wealthy country at one price and 16.4??S?ills in the large poor country at another price?hichever nets them the highest surplus.?(If the fractional 0.4 pills gives you a problem, think about the pills in millions so that 16.4 is 16,400,000.)22. What is GP’s profit-maximizing strategy for selling the 16.4 pills? Answer to two decimals.????????????????????????????????????????????????????????????????????Sell _______ pills in the small wealthy country charging a price of ________ there and sell?_______ pills in the large poor country, charging a price of _________ there.?3. What is GP’s producer surplus under this optimal pricing and sales strategy??___________?4.?What is marginal revenue in each country under the 16.4 pill constraint?___________.?ry working 22 and 23 first yourself, thinking about how to set up the problem.?If you need a hint, then highlight the text on the next page (after HINT) and turn the font color from white?o black.HINT:?uestions 22, 23 and 24 require solving a simultaneous equations problem since you have the added constraint that QS? QL? 16.40.?If you don’t want more of a hint, read no more. If you do, read on.?MORE HINT:?With the pill constraint of 16.4, it won’t be possible for GP to get MR down to MC of 1.?The best GP can do is to be sure that MRL? MRS?(no country is delivering a higher marginal revenue than the other).?So, substitute QS? 16.40 – QL?nto the MRS?quation and use it together with the MRL?quation to solve for QL.?With QL?etermined, you can get all the rest of the values.*NOTE: In this problem, there is a long run and a short run.?At the beginning of the long run, Global Pharmaceuticals (GP) makes an investment in developing a new pill.?With that fixed cost in place and the pill developed, GP then proceeds to maximize profit in the short run by setting MR = MC, knowing that in the long run, P must cover AC = C/Q or it is losing money on the pill and should think about going out of business if all pills have the same such profitability.?GP’s short-run producer surplus is used to cover its fixed cost (of pill development) and for profits, which can be distributed to shareholders or used for new drug development.?Furthermore, since the marginal cost of making a pill is independent of location, GP’s short run profit-maximizing strategy is the same as its long run one so long as it is making positive profit.BusinessEconomicsMacroeconomicsECON 2302Get a plagiarism-free order today we guarantee confidentiality and a professional paper and we will meet the deadline.
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