Assume that annual inverse demand for a particular product is P=150-Q. The product is offered by a pair of Bertrand competitors, each with marginal costs of $75. The discount factor is 0.9. What is the current equilibrium price and total surplus? Now, assume though that if R&D is conducted at rate x, it incurs one-off costs of r(x)=10x^2 and reduces the marginal costs to (75-x). Suppose that one firm decides to conduct R&D at rate x=10. This research will be protected by a patent of T years. a) What profit(ignoring the one-off costs of R&D) does the innovating firm make each year during the period of patent protection? b) What is the new equilibrium price and total surplus once patent protection expires? c) Use your answer above to write the total surplus from the innovation

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
Assume that annual inverse demand for a particular product is P=150-Q. The product is offered by a pair of Bertrand competitors, each with marginal costs of $75. The discount factor is 0.9. What is the current equilibrium price and total surplus? Now, assume though that if R&D is conducted at rate x, it incurs one-off costs of r(x)=10x^2 and reduces the marginal costs to (75-x). Suppose that one firm decides to conduct R&D at rate x=10. This research will be protected by a patent of T years. a) What profit(ignoring the one-off costs of R&D) does the innovating firm make each year during the period of patent protection? b) What is the new equilibrium price and total surplus once patent protection expires? c) Use your answer above to write the total surplus from the innovation
Expert Solution
steps

Step by step

Solved in 6 steps with 17 images

Blurred answer
Knowledge Booster
Multiplicative Exponential demand Model
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education