Question: In a perfectly competitive market, the inverse demand function is p = 50 Q. Market supply, Q s , is perfectly elastic at a price

In a perfectly competitive market, the inverse demand function is $p = 50 ˆ’ Q .$ Market supply, $Q^{s},$ is perfectly elastic at a price of 40, because each firm has a constant marginal cost $M C = 40.$

a. Create a spreadsheet with column headings Q, p, MC, and CS (consumer surplus). Fill in the spreadsheet for $Q = 1, 2, 3, €¦ 25.$ Calculate the competitive market€™s equilibrium output and price.

b. One firm invests 200 in a successful R&D project that allows it to lower its marginal cost of production from 40 to 10. The firm gets a patent for its new process. Create a new spreadsheet showing the situation under this patent monopoly, with no competitive firms. The column headings are Q, p, MR, MC, CS, and Profit (including the investment of 200). Calculate the patent monopoly€™s profit-maximizing output, price, and profit. Did the R&D investment pay?

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