8. Monopolies and innovation. Monopolies can benefit by inventing new products that qualify for patent protection. The justification for the patents is that innovation helps consumers so see an example of how that can happen. a.) b-) Many companies make devices to help monitor blood sugar which is important for managing diabetes. The technology to do this is old so the devices are sold in a competitive market at marginal cost, $40. The demand for the device is described by QB = 100 2P so you can graph the demand and find the current consumer surplus in this marketplace. What is the consumer surplus? 5 ABC; The devices are difficult to manufacture due to the complicated electronics involved but one company expects that with some R&D it can find a way to integrate some of the parts and produce the devices with a marginal cost half as big. The company expects to get a patent on the new production process and it will then have a monopoly on the new device. As a monopolist they will face an MR (Q) = 50 - Q. (There is a connection between demand and MR that is beyond the scope of this course. Just take this one as given.) You can use the MR and MC to find the profit maximizing quantity and profit for the rm. Based on the price and quantity you can calculate consumer surplus. What is the consumer surplus with the patent? 5