Price and profit levels
A. ABC Technologies, Inc., enjoys an exclusive patent on a
process to atomize gasoline with platinum in combustion engines, producing
substantial gains in miles per gallon. Total and marginal revenue relations for
the process are:
TR = $250Q – $0.001Q2
MR = MTR/MQ = $250 – $0.002Q
Marginal costs for the process are stable at $150 per
engine. All other costs have been
fully amortized.
1. As a monopoly, calculate ABC’s output, price, and profits
at the profit maximizing level.
2. What price and profit levels would prevail following
expiration of copyright protection (assume that perfectly competitive pricing
would result)?
Categories: