In class we explored the incentives for perfectly competitive firms and monopolists to innovate when a patent system exists that confers indefinite patents. We found that P*=10 and Q*=80 were the same before and after the invention if the original market was perfectly competitive. Using the demand and cost functions below, show that the inventor in a perfectly competitive market would prefer to charge the perfectly competitive price of P*=10 rather than charging less than P*. (The competitive firms prevent the innovator from charging more than P*.) Use profit-maximization under monopoly to show that P*=10 is optimal.
𝑄𝐷(𝑃) = 100 − 2𝑃 𝐶(𝑄) = 10𝑄. Get Economics homework help today