We reward innovation with patents, which confer temporary monopoly status. Michael who is well known for his work on developing alternative systems. You can read some of his work here:https://scholar.harvard.edu/files/kremer/files/incentivizing_innovation_ipe_pub_2010.pdf

Or some more complicated work here:

https://dash.harvard.edu/bitstream/handle/1/3693705/Kremer_PatentBuyouts.pdf

1. Draw a diagram (showing MC, AVC, MR, and Demand curves) to show why a monopoly creates deadweight loss.
2. Explain, in a few sentences, why we award patents despite this deadweight loss. What problem do patents solve?
3. Describe an alternative to awarding patents considered by Kremer. What problems does it solve? What risks does it create?