Reference no: EM132812766

In a given market the inverse demand function is P = 170 - Q C(q) = 80 q. per year. The interest rate is r = 0.05 and the cost structure of a firm is given by

Now assume that originally there was a Cournot duopoly in the market (with equal costs) and that it would be too costly for the research institute to enter the market. Answer the following:

If the research institute sells an exclusive license at a fixed annual fee L to firm 1 (with the threat of going to the other firm if firm 1 rejects the offer), then

Group of answer choices

• The optimal annual fee is 2,100 and profits for firm 1 and 2 are 400 and 400 respectively.
• The optimal annual fee is 1,600 and profits for firm 1 and 2 are 900 and 900 respectively.
• The optimal annual fee is 1,600 and profits for firm 1 and 2 are 900 and 400 respectively.
• The optimal annual fee is 2,100 and profits for firm 1 and 2 are 400 and 900 respectively.