Firm A introduces a drug to treat the common cold. The drug has inverse demand P = 5Q/2 and constant marginal cost of 1 and no fixed cost. Firm B is considering releasing it's own version of the drug. If both drugs are released, they will each have inverse demand P = 2 Q/2. Firm B also has a constant marginal cost of 1 and there is a fixed cost of 1/4 if Firm B decides to develop the drug. (a) What is the social welfare if Firm A's product is offered but not Firm B's product?

(b) If Firm A is not able to patent the drug and stop Firm B from entering, would Firm B want to enter?

(c) What is social welfare if both firms enter the market?

(d) Should a policy maker maximizing social welfare allow Firm A to patent the drug, blocking Firm B from entering?