Assume that the drug company can negotiate with the US and foreign government(s) and thus tries to implement the two-tier pricing scheme that was described in Lecture 3, with one price for access to the drug, and a second price set per unit of the drug set at the marginal cost of the drug. You may assume that the increase in demand happens at exactly the listed prices. That is, 200 consumers in the foreign market would be willing to pay exactly $60, an additional 25 would be willing to pay $55, 150 more would be willing to pay $50, and so on.
What prices would the pharmaceutical company set?
What is the company's profit?
Does resale between markets need to be prevented?