# . 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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