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I. You are an inventor and you have created a new agricultural technique of applying symbiotic fungus to seeds as they are planted and you
I. You are an inventor and you have created a new agricultural technique of applying symbiotic fungus to seeds as they are planted and you patent this technique. It costs $4,500 to implement on the average farm, lasts for three years, and increases the yield of the farm by $7,000 at the end of the first year, $5,500 at the end of the second year, and $3,000 at the end of the third year. Farmers can borrow from their banks for agricultural inputs at a rate of 5.2%.
1-What price will your new agricultural technique tend toward in a competitive market?
2- If the patent lasts for 17 years, and if you sold your product at the price you just calculated to 1,500 farmers per year, how much is your patent worth assuming that your company can borrow money at 6.9%?
3-In the 1980s, the Federal Reserve Chairman Paul Volcker raised the federal funds rate to 16% in an effort to combat inflation. If suddenly the farmers could only borrow at 19.2%, what price will the symbiotic fungus application technique tend toward after the change in interest rates?
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