Under Patent Protection, a Firm Has a Monopoly in the Production

question 16

Essay

Under patent protection, a firm has a monopoly in the production of a high-tech component. Market demand is estimated to be P = 100 - .2Q. The firm's economic costs are given by AC = MC = $60 per component.
(a) Determine the firm's output and price.
(b) After the firm’s patent expires, predict the new market output and price. Compute the resulting change in consumer surplus. Calculate the net welfare gain. Assume that competing suppliers have the same economic costs as the original producer.

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Definitions:

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