In Question 6.1, assume that the R&D cost is 150. Are consumers made better off by the action taken by Woz? Does total surplus rise?

Question 6.1

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 that 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?