Suppose that an inventor estimates that by spending $200,000 he/she can invent a technology that would win the competition with probability 2%. However, the inventor also thinks that with that same investment and the same probability of success, he/she can get a patent that would allow him/her to become a monopolist (who does not price discriminate) for 20 years. After those 20 years, intense competition will drive profits to zero. The discount rate of this inventor is r = 0.023, so that

Suppose that the inventor also estimates that each year he/she will face an inverse market demand of

The marginal cost of selling the invention is 2, 000. Compute the net present value of becoming a monopolist for 20 years. That is, compute the value of

1-e-0.023-20 D(20) = = 16 0.023 P(Q) = 5,000 - Q. D(20) TM 1-e-0.023-20 D(20) = = 16 0.023 P(Q) = 5,000 - Q. D(20) TM