# . Consider and inverse market demand P(Q) = 10 — 2Q. Suppose there are two ﬁrms competing in prices (Bertrand). Compute the equilibrium price set by each ﬁrm and the

. Consider and inverse market demand P(Q) = 10 — 2Q. Suppose there are two ﬁrms
competing in prices (Bertrand). Compute the equilibrium price set by each ﬁrm and
the quantities sold in the equilibrium. Also, compute each ﬁrms’ proﬁts in equilibrium
when: (a) Both ﬁrms have constant marginal cost equal to c = 5. (b) One ﬁrm has marginal cost equal to CH = 5 the other one with marginal cost equal
to cL = 2. (c) One ﬁrm has marginal cost equal to CH 2 8 the other one with marginal cost equal
to cL = 2. . Consider and inverse market demand P(Q) = 10 — Q. Suppose there are two ﬁrms
competing in prices (Bertrand). One ﬁrm has marginal cost equal to CH 2 8 the other
one with marginal cost equal to CL = 2. An inventor has designed a new manufacturing process that would reduce the marginal
cost of production to c = 1. The inventor has three options: (a) Sell the invention to ﬁrm 1 only.
(b) Sell the invention to ﬁrm 2 only. (c) Sell the invention to both ﬁrms. In this case, assume that both ﬁrms understand
that the inventor is also selling the invention to their respective rival. In either alternative, the inventor will use a “lump-sum” contract, i.e., it will sell the
invention for a ﬁxed fee F . Compute the inventor’s proﬁt for each licensing alternative.
Which one maximizes the inventor’s payoff? Econ of tech and inno

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