1. The inverse demand function faced by two companies competing for Cournot with homogeneous products is...

 

Transcribed Image Text:

1. The inverse demand function faced by two companies competing for Cournot with homogeneous products is P=120-(q1+q2). q 1 and q 2 are the output of firm 1 and firm 2. Before innovation, the marginal cost of the two companies is the same at 60. 1) One company succeeded in a breakthrough innovation that lowered its marginal cost to 30 and is protected by a patent. If you are not licensing two firms, calculate the equilibrium output and profits of the two firms. Describe the process appropriately. 2) Let's say that company 1 charges company 2 with a certain amount of licensing (L, lump-sum). 2 Calculate how much a firm is willing to pay (L). Describe the process appropriately. 3) Let's say that Firm 1 charges Firm 2 with royalty licensing. In the first phase, firm 1 charges firm 2 with a royalty of r per unit of output. In the second stage, the marginal cost of the second firm falls from 60 to 30, but pays r royalties per unit of output. a) In the second step, draw up the profit function of the two firms and derive the output and profit of the two firms as a function of r. b) In the first stage, the optimal royalty is r * = 30. Find the output and profits of the two companies. Show R=r*xq₁ the process appropriately. Find the amount of royalty paid by Firm 2 4) Explain which licensing company 1 prefers by comparing the fixed amount (L) in 2) above and the royalty amount (R) in 3). 1. The inverse demand function faced by two companies competing for Cournot with homogeneous products is P=120-(q1+q2). q 1 and q 2 are the output of firm 1 and firm 2. Before innovation, the marginal cost of the two companies is the same at 60. 1) One company succeeded in a breakthrough innovation that lowered its marginal cost to 30 and is protected by a patent. If you are not licensing two firms, calculate the equilibrium output and profits of the two firms. Describe the process appropriately. 2) Let's say that company 1 charges company 2 with a certain amount of licensing (L, lump-sum). 2 Calculate how much a firm is willing to pay (L). Describe the process appropriately. 3) Let's say that Firm 1 charges Firm 2 with royalty licensing. In the first phase, firm 1 charges firm 2 with a royalty of r per unit of output. In the second stage, the marginal cost of the second firm falls from 60 to 30, but pays r royalties per unit of output. a) In the second step, draw up the profit function of the two firms and derive the output and profit of the two firms as a function of r. b) In the first stage, the optimal royalty is r * = 30. Find the output and profits of the two companies. Show R=r*xq₁ the process appropriately. Find the amount of royalty paid by Firm 2 4) Explain which licensing company 1 prefers by comparing the fixed amount (L) in 2) above and the royalty amount (R) in 3).

Answer rating: 100% (QA)

Lets go through the steps for each part of the question 1 Equilibrium Output and Profits without Lic... View the full answer