It is expected that any of 50 firms that specialize on producing mousetraps can invest 150 and develop a new kind of a mousetrap within six months. The expected present value of profit from the patent on this mousetrap is 1000. Assume that the delay of up to six months in developing the new mousetrap results in negligible social costs. (i) What is the socially efficient number of firms to undertake the development of the new mousetrap? (ii) How many firms would participate in the patent race to develop the new mousetrap? (iii) Assuming that the investments to develop the mousetrap are made at time 0 (before anybody develops the new mousetrap), what is the social loss from the patent race?

It is expected that any of 50 firms that specialize on producing mousetraps can invest 150 and develop a new kind of a mousetrap within six months. The expected present value of profit from the patent on this mousetrap is 1000. Assume that the delay of up to six months in developing the new mousetrap results in negligible social costs. (i) What is the socially efficient number of firms to undertake the development of the new mousetrap? (ii) How many firms would participate in the patent race to develop the new mousetrap? (iii) Assuming that the investments to develop the mousetrap are made at time 0 (before anybody develops the new mousetrap), what is the social loss from the patent race?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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