Question

Woz Enterprises specializes in electrical components. The market for one particular component is perfectly competitive and in long-run equilibrium. Marginal cost is constant at 30. Woz can develop a much cheaper process for producing this component, lowering its marginal cost to 10. The R&D cost of developing the new process would be F, and Woz would be able to obtain a patent for it and become a monopoly supplier of this component. Demand for the product over the relevant period is given by p = 50 – 2Q. Show the R&D investment would be worthwhile (raise profit) for Woz if F = 150 but not if F = 250. What is the critical value for F that determines whether R& D is worthwhile for Woz?



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  • CreatedNovember 13, 2014
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