Two medical laboratories (lab 1 and lab 2) join forces to developa new antibiotic. Each laboratory must decide how many researchers to assign to the jointproject. The more researchers they assign to this project, the faster they will be able todevelop and supply the new medicine. But, at the same time, other projects will be left onstand-by as they reallocate their staff to the joint project. Laboratory 1 has slightly moreexpertise in the science that is required for the antibiotic. This is captured assuming thateach scientist it assigns to the project can contribute slightly more than those assignedby laboratory 2.Specifically, estimations show that when lab 1 assigns r, researchers and lab 2 assigns r2researchers to the project, it leads to an overall revenue worth €X which is given byX = 120(2r, + r2).Estimations also show that laboratory i faces a cost from having to leave some projectson stand-by which is given by 3(ri)². What feasible values of s, and s, maximize the total surplus whenthe firms select the number of researchers individually and non-iii.cooperatively? How much surplus is lost?(Note that feasible means s, + s2 = 1.)

Let's determine the feasible values of s1 and s2 that maximize the total surplus when the firms…

iii. What feasible values of s₁ and s₂ maximize the total surplus when the firms select the number of researchers individually and non- cooperatively? How much surplus is lost? (Note that feasible means S₁ + S₂ = 1.)

iii. What feasible values of s₁ and s₂ maximize the total surplus when the firms select the number of researchers individually and non- cooperatively? How much surplus is lost? (Note that feasible means S₁ + S₂ = 1.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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