1.Patents and the Incentive to Invent
Suppose that, in order to invent a new product, a firm has to spend $120 onresearch and development. If the firm invents the product the government will grant it a patent for t years, but after t years enough firms will enter the market so that each firm earns zero profits in the long-run.
If the firm's annual costs are: C(Q)=Q^2+3Q+2
And the annual demand for the product is: QD =15-1/2p
What would t have to be for the firm to be willing to invent the product?
2.Marginal Revenue of a Monopolist
a. Prove mathematically that marginal revenue is always less than price, P(Q).
b. Explain this intuitively as well.You may use a graph to help you. Remember marginal revenue is the money the firm takes in after selling an additional unit