1) Patents and Trade Secrets A firm can invent a new product. That firm is the only entity in that world that can invent the product. Doing so leads to a research cost of r, to be paid once in the first period. The monopoly price for this new product is 6$ per unit and the firm can produce this good, if research have peen done, at a cost of where q is the quantity of good produced. Time is discrete and the irm faces the same price and cost function every period. Without a patent, other firms enter the market and those firms can produce the product more efficiently, therefore without a patent che firm makes 0 profit. a) What is the value for the firm of a patent of infinite duration? Assume a discount factor B = 0.9. b) Suppose that there is no possibility for the firm of keeping a trade secret. The research cost for that good is 30$. The government can create a patent for the good before the firm has to make a research decision. The terms of the patent cannot be changed after its

1) Patents and Trade Secrets A firm can invent a new product. That firm is the only entity in that world that can invent the product. Doing so leads to a research cost of r, to be paid once in the first period. The monopoly price for this new product is 6$ per unit and the firm can produce this good, if research have peen done, at a cost of where q is the quantity of good produced. Time is discrete and the irm faces the same price and cost function every period. Without a patent, other firms enter the market and those firms can produce the product more efficiently, therefore without a patent che firm makes 0 profit. a) What is the value for the firm of a patent of infinite duration? Assume a discount factor B = 0.9. b) Suppose that there is no possibility for the firm of keeping a trade secret. The research cost for that good is 30$. The government can create a patent for the good before the firm has to make a research decision. The terms of the patent cannot be changed after its

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose a firm can invent a new product. That firm is the only entity in the world that can invent the product. Doing so incurs a research cost of r to be paid once in the first period. The monopoly price for this new product is 6$ per unit and the firm’s production cost after doing the research in (q^2)/2 where q is the quantity of the good produced.Time is discrete and the firm faces the same price and cost function every period. Without a patent, other firms enter the market and those firms can produce the product more efficiently, therefore without a patent, the firm makes zero profit.1) What is the value for the firm of a patent with infinite duration? Assume a discount factor b = 0. 9.2) Suppose that there is no possibility for the firm of keeping a trade secret. The research cost for that good is 30$. The government can create a patent for the good before the firm has to make a research decision. The terms of the patent cannot be changed after its creation. What is the duration…
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Appalachian Coal Mining believes that it can increase labor productivity and, therefore, net revenue by reducing air pollution in its mines. It estimates that the marginal cost function for reducing pollution by installing additional capital equipment is MC = 40P where P represents a reduction of one unit of pollution in the mines. It also feels that for every unit of pollution reduction, the marginal increase in revenue (MR) is MR = 1,000 - 10P How much pollution reduction should Appalachian Coal Mining undertake?
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Firms within the country of Anviliania are currently emitting pollutants. These pollutants cause damages within Anviliania. However, the pollutants also cause damages to the properties and health of residents of countries that share borders with Anviliania. The Marginal Abatement Costs of the firms in Anviliania can be represented by the equation MAC(Anvil.) = 750 -2.3 e The Marginal Damage Costs to the residents of Anviliania are given by MDC (Anvil.) =- - 40 + 10 e The Marginal Damage Costs to all residents (including the residents of Anviliania) are MDC (Globe) = -20+ 12 e a. Draw a diagram representing this situation. b. Determine the magnitude of the local market failure and the global market failure. c. Suppose that the Anvilianian government has given production subsidies to the firms in Anviliania. As a result, the firms have increased production (and the number of firms have increased.). Consequently, the aggregate MAC is now MAC' (Anvil.) = 800 - 2.3 e. Determine the…
20) This decision tree represents the expected profits and the standard deviations associated with three decisions facing a mobile phone producer (All figures are in millions of dollars). The root node (the one on the left) represents the decision of whether to produce the phones in China or North America. The second pair of nodes represent the decision of whether to market the phones in China or North America; and the final nodes represent the choice of selling price: if the phones are sold in China, they will be sold for either $30 or $40, whereas if they are sold in North America, they will be sold for either $40 or $50. Based on the calculated values, what is the company's best strategy? Mean $30 1.250, sd 750 Sell China $40 Mean 375, sd = 625 Make in China Mean= -1,000, sd = 1,500 $40 Sell NA S50 Mean =-1,500, sd = 1,250 Sell China $30 $40 Make in NA Mean 1,250, sd.- 2,137 Sell NA $40 S50 Mean --250, sd-1.639