Question

1. Return to the final example of section 5.5, in which the demand for AIDS drugs was QN = 100−P in North America andQ S = α100 − P in Sub-Saharan Africa. Show that with marginal cost = 20 for such drugs, it must be the case that α > 0.531 if the drug manufacturer is to serve both markets while charging the same price in each market. (HINT: Calculate the total profit if it serves only North America and then calculate the total profit if it serves both markets. Then determine the value of α for which the profit from serving both markets is at least as large.)

Answer 1