ProbSet6_ProblemSet - AEM 331 Problem Set #6 Due 5/02/08 1....

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AEM 331 Problem Set #6 Due 5/02/08 1. Suppose Research R’ Us (RRU) wants to merge with We Do Research (WDR). Both firms are research and development (R&D) intensive firms. The companies make the case that this merger should be allowed since there will be significant cost savings by avoiding overlaps in R&D (especially fixed costs). a. What type of market are these two firms in? b. What are two reasons why the government might oppose this merger? c. Explain why these reasons for opposition might be difficult to quantify. 2. Licensing problem. Suppose an R&D firm, Firm A, develops a new product and chooses to license it to another firm, Firm B, since Firm A doesn’t have the capability of selling the product itself. Suppose inverse demand for this product is: P = 210 – 2*Q. Finally, suppose marginal cost of production for Firm B is 10 and there are no fixed costs of production. a. If there are no licensing fees, how much profit can Firm B make? b.
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ProbSet6_ProblemSet - AEM 331 Problem Set #6 Due 5/02/08 1....

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