10. The price of a patent: Let's use the arbitrage equation to determine the price of a patent in a simple setting. Let R denote the interest rate, let pi denote the price of an "idea" that is under patent, and let Prof denote the extra profit that can be earned by a firm that owns this idea. 1. Set up the basic arbitrage equation that will ultimately pin down the value of the patent. On the left side show the return from investing pi dollars in a saving account. On the right, show the return from using these funds to purchase the patent. 2. Solve this equation for the price of the idea. 3. What is the economic interpretation of this result?

10. The price of a patent: Let's use the arbitrage equation to determine the price of a patent in a simple setting. Let R denote the interest rate, let pi denote the price of an "idea" that is under patent, and let Prof denote the extra profit that can be earned by a firm that owns this idea. 1. Set up the basic arbitrage equation that will ultimately pin down the value of the patent. On the left side show the return from investing pi dollars in a saving account. On the right, show the return from using these funds to purchase the patent. 2. Solve this equation for the price of the idea. 3. What is the economic interpretation of this result?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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