4) Now consider firms that produce new scientific discoveries (not shirts!) that generate a positive externality because
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Question:
4) Now consider firms that produce new scientific discoveries (not shirts!) that generate a
positive externality because other firms can build on their findings.
a. Draw supply and demand curves when firms treat future scientific advances as
an externality and show how they would change if firms were to instead consider
the externality as part of their benefits.
b. How does failing to consider the externality affect the equilibrium price and
quantity of scientific discoveries, relative to the case where firms consider the
externality?
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