Just d please 1) Patents and Trade SecretsA firm can invent a new product. That firm is the only entity in that world that can invent theproduct. Doing so leads to a research cost of r, to be paid once in the first period. The monopolyprice for this new product is 6$ per unit and the firm can produce this good, if research havebeen done, at a cost of where q is the quantity of good produced. Time is discrete and thefirm faces the same price and cost function every period. Without a patent, other firms enterthe market and those firms can produce the product more efficiently, therefore without a patentthe firm makes 0 profit.a) What is the value for the firm of a patent of infinite duration? Assume a discount factorB = 0.9.b) Suppose that there is no possibility for the firm of keeping a trade secret. The researchcost for that good is 30$. The government can create a patent for the good before thefirm has to make a research decision. The terms of the patent cannot be changed after itscreation. What is the duration of the patent that the government should pick?c) Suppose now that the firm must choose between a 20 year patent and a trade secret thatcost 1$ per year to keep. Should the firm request a patent or should it keep a trade secret?d) If keeping a trade secret is possible, does your answer for part b) changes? Why or whynot?

Introduction: A patent is an exclusive right awarded for an invention, which is a product or…

Answered: d) If keeping a trade secret is…

Business

Economics

d) If keeping a trade secret is possible, does your answer for part b) changes? Why or not? why

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Monopoly

Section: Chapter Questions

Problem 7PA

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Question

Just d please

1) Patents and Trade Secrets
A firm can invent a new product. That firm is the only entity in that world that can invent the
product. Doing so leads to a research cost of r, to be paid once in the first period. The monopoly
price for this new product is 6$ per unit and the firm can produce this good, if research have
been done, at a cost of where q is the quantity of good produced. Time is discrete and the
firm faces the same price and cost function every period. Without a patent, other firms enter
the market and those firms can produce the product more efficiently, therefore without a patent
the firm makes 0 profit.
a) What is the value for the firm of a patent of infinite duration? Assume a discount factor
B = 0.9.
b) Suppose that there is no possibility for the firm of keeping a trade secret. The research
cost for that good is 30$. The government can create a patent for the good before the
firm has to make a research decision. The terms of the patent cannot be changed after its
creation. What is the duration of the patent that the government should pick?
c) Suppose now that the firm must choose between a 20 year patent and a trade secret that
cost 1$ per year to keep. Should the firm request a patent or should it keep a trade secret?
d) If keeping a trade secret is possible, does your answer for part b) changes? Why or why
not?

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