It is expected that any of 50 firms that specialize on producing mousetraps can invest 150 and develop a new kind of a mousetrap within six months. The expected present value of profit from the patent on this mousetrap is 1000. Assume that the delay of up to six months in developing the new mousetrap results in negligible social costs. (i) What is the socially efficient number of firms to undertake the development of the new mousetrap? (ii) How many firms would participate in the patent race to develop the new mousetrap? (iii) Assuming that the investments to develop the mousetrap are made at time 0 (before anybody develops the new mousetrap), what is the social loss from the patent race?

It is expected that any of 50 firms that specialize on producing mousetraps can invest 150 and develop a new kind of a mousetrap within six months. The expected present value of profit from the patent on this mousetrap is 1000. Assume that the delay of up to six months in developing the new mousetrap results in negligible social costs. (i) What is the socially efficient number of firms to undertake the development of the new mousetrap? (ii) How many firms would participate in the patent race to develop the new mousetrap? (iii) Assuming that the investments to develop the mousetrap are made at time 0 (before anybody develops the new mousetrap), what is the social loss from the patent race?

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter14: Environmental Economics

Section: Chapter Questions

Problem 7SQ

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