2. (20 pts) This monopolist has a patent which gives him the exclusive right to produce X. This patent can be sold to another producer, who would then have the exclusive rights to product X. Assume that a profit of $243 can be earned each year, the patent protection lasts forever and the interest rate is 3%. There are a number of other producers of X who have the same production costs as our monopolist, however in order to produce and sell product X they will have to purchase the patent from the current monopolist. If they do buy the patent, they will become the monopolist producing and selling product X.

a. At what price would the patent sell?

b. Suppose that someone, person B, purchases the patent at the price determined in a. What will happen to this producers total cost per year? ______ If it changes, how much will it change? _____

c. What will happen to Bs average total cost? ____ If it changes, how much will it change?

d. Having just bought the patent, how many units of X will the new monopolist produce each year? _____

e. What price will the new monopolist charge per unit of X? ___

f. Given your answers to 2b, e and f, how much profit will B earn each year? ____