Assume that firms that change the oil in cars compete in a perfectly competitive industry with many firms offering oil changing services at a cost of $30/oil change. Then, two firms, firm A and firm B invent two patented technologies A and B that lower the cost of oil changes: technology A lowers the cost of oil changes by $5/change; technology B lowers the cost by $10/change. If firm A and B compete i licensing their technology to the oil changing industry, can you use the Bertrand model to predict the royalty they will charge in equilibrium per oil change and what the effect will be on the price of oil changes.

Assume that firms that change the oil in cars compete in a perfectly competitive industry with many firms offering oil changing services at a cost of $30/oil change. Then, two firms, firm A and firm B invent two patented technologies A and B that lower the cost of oil changes: technology A lowers the cost of oil changes by $5/change; technology B lowers the cost by $10/change. If firm A and B compete i licensing their technology to the oil changing industry, can you use the Bertrand model to predict the royalty they will charge in equilibrium per oil change and what the effect will be on the price of oil changes.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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