workshop 3 - (iii) Assume the industry is perfectly...

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ECOS2201 - Economics of Competition and Strategy Workshop - 3 5. continued from workshop 1 (c) Let firm 1 license this technology to firm 2, so that c 2 = 5 , however, in return firm 2 has to pay a per unit royalty of 5 to firm 1. Calculate the profits of the two firms under this licensing agreement. Is licensing profitable. Provide intuition for this result. 1. Industry demand is given by p = 100 - Q, where p is per-unit price and Q is the quantity sold. (i) A monopolist has constant marginal cost of c = 40 . Find the profit maximising quantity and price and the monopolist’s maximised profit. (ii) The monopolist innovates and marginal cost is reduced to c = 20 . Find the new profit maximising quantity and price and the monopolist’s maximised profit.
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Unformatted text preview: (iii) Assume the industry is perfectly competitive and each firm in the industry has constant marginal costs of c = 40 . Find the competitive equilibrium price and quantity. (iv) Assume one firm innovates and reduces its marginal cost to c = 20 . It patents the innovation. Assume it prices at the price found in (iii) less 1 cent. Calculate the innovator’s profit (Ignore the 1 cent). (v) Given this analysis, which industry structure, monopoly or perfect competition, has the greater incentive for innovation? Explain. 2. Given patents provide innovators with monopoly rights for many years, why would a firm chose to keep a new technology secret rather than patent it? 1...
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This note was uploaded on 02/16/2010 for the course ECOS Economics taught by Professor None during the One '09 term at University of Sydney.

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