Suppose a competitive market with the inverse demand p = 100-q. An innovation reduces the constant marginal production cost from 75 to 60. • Q3) Determine the price set by a monopoly using the innovation. • Q4) Determine the minimal reduction in marginal cost for the innovation to be drastic. . • Q5) Determine the maximum R&D expenditure a competitive firm would be ready to incur to develop a drastic innovation that leads to a post-innovation marginal cost of 20. Q6) Suppose instead the industry is composed of only one firm, a monopoly. Determine the maximum R&D expenditure a monopoly would be ready to incur to develop a drastic innovation that leads to a post-innovation marginal cost of 20.
