A pharmaceutical firm faces the following monthly demands in the U.S. and Mexican markets for one of its patented drugs:
Q US = 300,000 - 4,000*P US
QX = 240,000 - 7,000*PX
where quantities represent the number of prescriptions.
Assume that resale or arbitrage among markets is impossible and that marginal cost is constant at $2 per prescription in both markets. Monthly fixed costs are $1 million in the United States and $500,000 in Mexico.
Draw the demand, marginal revenue, and marginal cost curves for each market. What are each of the firm’s total profits?