Suppose That GSK Sells One of Its Drugs for $25/pill

question 179

Multiple Choice

Suppose that GSK sells one of its drugs for $25/pill in the United States and $13/pill in Canada. Which of the following statements is TRUE?
I. The price discrimination benefits the Canadians since they pay a lower price.
II. The price discrimination benefits the Americans since GSK's larger profits means more research and development of new drugs for Americans.
III. Price discrimination is beneficial in industries with large fixed costs, since price discrimination increases the size of the market, helping to spread large costs over a greater number of consumers.

• A) I only
• B) I and II only
• C) I and III only
• D) I, II, and III

---

Definitions:

Demand Decreases

A situation where the quantity of a product or service that consumers are willing to buy at a given price drops, often due to changes in preferences, income, or substitutes.

Industry Exit

The process or act of businesses leaving a particular market or industry, often due to unfavorable conditions or better opportunities elsewhere.

Long-Run Equilibrium

A state in a market where all factors of production are fully utilized, leading to a situation where supply equals demand, with no external pressures to change.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, representing true profitability.