Two firms produce a specialized microchip (Trium X406) used in certain home appliances. Demand is given...

 

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Two firms produce a specialized microchip (Trium X406) used in certain home appliances. Demand is given by Q = 100 - 2p (Q in thousands of units, p in $). Whichever firm sets the lowest price gets all of the demand, and there are no capacity constraints. Both producers have a marginal cost of $30. A cost-reducing innovation would allow Firm 1 to decrease its cost down to $20. The cost of the innovation is $520k per period. Should Firm 1 should go ahead and acquire the innovation? Provide a brief (one sentence) justification for your answer. Two firms produce a specialized microchip (Trium X406) used in certain home appliances. Demand is given by Q = 100 - 2p (Q in thousands of units, p in $). Whichever firm sets the lowest price gets all of the demand, and there are no capacity constraints. Both producers have a marginal cost of $30. A cost-reducing innovation would allow Firm 1 to decrease its cost down to $20. The cost of the innovation is $520k per period. Should Firm 1 should go ahead and acquire the innovation? Provide a brief (one sentence) justification for your answer.

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