pharmaceutical company faces the following demand function for one of its products in the American market: QA = 300,000 - 5,000 PA where QA is the number of prescriptions sold in the American market annually and PA is the price per prescription. The firm's annual total cost function is:
A pharmaceutical company faces the following
QA = 300,000 - 5,000 PA
where QA is the number of prescriptions sold in the American market annually and PA is the price per prescription. The firm's annual total cost function is:
TCA = $1,000,000 + $2 QA
The company is considering also entering the Brazilian market where the demand for the pharmaceutical is:
QB = 240,000 - 8,000 PB
The cost function for the Brazilian market is:
TCB = $1,000,000 + $2 QB
a) At the optimal quantity, what is the price elasticity of demand in the Brazilian market?
b) Now suppose that the interest rate in the U.S. is increasing relative to other countries, what do you expect to happen to the exchange rate of the US dollar? What effect would this have on the demand in the Brazilian market and revenues from the Brazilian market? (Note: Production will occur in the U.S.)
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