R&D and entry . Consider a two-period model of a market with demand function Q=1

Question

R&D and entry. Consider a two-period model of a market with demand function Q=12-P. In period 1, an incumbent monopolist and a potential entrant compete to get the license of a new invention. Each can offer the R&D lab (which can’t compete by itself) a sum of money for the invention. The lab sells the invention to the firm who gives the most (in case of a tie, assume that the lab sells the invention to the monopolist). Before buying the invention the monopolist has MC=4 and the potential entrant has MC=12. Whoever buys the invention will have MC=2. In case entry occurs, the two firms compete in quantity (Cournot). How many firms will exist next period and which firm will buy the invention and for how much?

Explanation / Answer

Ans:

In this the R &D entry hving a two period model of a business sector with interest capacity Q=12-P. In period 1, an occupant monopolist and a potential participant contend to get the permit of another development. Each can offer the R&D lab (which can't contend without anyone else's input) a total of cash for the innovation. The lab offers the development to the firm who gives the most (if there should arise an occurrence of a tie, accept that the lab offers the creation to the monopolist. its adversary's cost increment. In the event that c1 > c2, firm 2 will along these lines create more. The generation choice does not rely on upon F1 and F2 (these are paid in any case of the yield level and are not affected by an adversary's generation choice).Before purchasing the creation the monopolist has MC=4 and the potential participant has MC=12. Whoever purchases the innovation will have MC=2. In the event that passage happens, the two firms contend in amount (Cournot)The amount created by a firm falls as its own cost increment and ascends as On the off chance that these altered expenses were adequately extensive, notwithstanding, they may impact the firms choices to create anything at all.Consider two firms that contend in amounts. The (converse) request capacity is given by

P(Q) = 3 Q, where Q = q1 + q2. Accept that firm 1 makes a perceptible speculation

PED = dQ/dP x P/Q = - 0.1 x 80/4 = - 2.

the PED is flexible , so at $80, value addition will diminish income.

R = P x Q = 12P - 0.1P^2

dR/dP = 12 - 0.2P .....equating to zero makes P = 60$ at most extreme income.

PED = dQ/dP x P/Q = - 0.1 x 60/4 = - 1.5.....at most extreme income.

Aleconomixt · 3 years prior

choice before the organizations set amounts. In the event that firm 1 chooses not to contribute, it pays nothing and brings about a minimal expense of 1. On the off chance that firm 1 chooses to contribute, it pays F > 0 and causes a negligible expense of 0. In any occasion, firm 2's minimal expense is 1.In Cournot amounts are vital substitutes on the off chance that one firm expands its yield the other firm wishes to reduction its yield. By contributing, firm 1 lessens its generation expenses and wishes to create more because of the higher markup firm 2 along these lines wishes to deliver less, which diminishes its benefit.

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