1. Which of the following statements is/are true?
2. What is true about the different stages of the research and development process?
3. Firms often face the following problem(s) when engaging in basic research:
4. FieldLab and MedInvest are leading pharmaceutical companies. They both think about starting a research campaign to examine the basic structure and properties of cancer cells which costs about 8mn USD. The outcome of the research campaigns does not directly relate to a product and is difficult to patent. But it helps the whole industry to better understand cancer cells and subsequently develop more sophisticated drugs. These can be sold at higher prices and generate additional revenues of 7mn USD for each company (if one company does research) or 9mn USD for each company (if both companies do research).
What will happen?
1. According to the replacement effect…
2. Given a monopoly situation, the replacement effect dominates the efficiency effect if…
3. Imagine you are the CEO of Forklift 2000, a well-established manufacturer of forklifts. Every year, there is demand for 1.000 forklifts. Usually, the customers go for the cheaper product. You and your competitor Lift-It Corporation have production costs of 10.000 Euros per forklift and the same production capacity.
At the beginning of this year, the head of an automation engineering company approaches you. He offers to equip you exclusively with an innovative production technology that lowers your production costs by 2.500 Euros per forklift.
What would you be willing to spend for the innovation?
1. What is true about sleeping patents?
2. Imagine there are two companies producing spray deodorants. A recent survey revealed that consumers prefer eco-friendly over conventional products. Both firms now think about setting up a research facility (total costs of 15mio Euro) to explore eco-friendly spray technologies. The probability that a research facility manages to develop such an innovative technology is 50%. If both firms sell eco-friendly deodorants, they make additional profits of 30mio Euro each. If only one firm offers such deodorants, this firm makes additional profits of 100mio Euro.
What will happen?
1. The first generation of Apple’s iPad is an example of…
2. Imagine that L’Oréal and Garnier are active in the market for skin care products.
Each firm could engage in research and development (R&D) to improve the formula of their anti-wrinkle cream.
The costs for such a R&D project are estimated to be 10mn Euros.
With probability of 25% such a R&D project comes up with a marketable improvement of the cream formula.
If only one firm (either Garnier or L’Oréal) comes up with an improved cream formula, this firm will make additional gross profits of 32mn Euros.
If both firms (Garnier and L’Oréal) come up with an improved cream formula, each firm will make additional gross profits of 16mn Euros.
Assume that L’Oréal and Garnier are both rational players that take their competitors into account. What will be the outcome of this situation?
3. Which of the following actor(s) has(have) the highest incentives to innovate?
4. Sleeping patents…
5. Which of the following statements are true:
6. Imagine you are the CEO of Nespresso, the monopolist for coffee capsules.
There are 1000 consumers:
– 600 are willing to pay 4 Euros per coffee capsule
– 400 are willing to pay 3 Euros per coffee capsule
Your production costs are 2 Euros per coffee capsule.
A consultancy firm has developed a new design concept for your coffee capsules. Their marketing department estimates that all of your consumers would be willing to pay 1 Euro more for coffee capsules in the new design. Your production costs are not affected.
The consultancy offers you to implement the new design for 500 Euros. Do you accept the deal?
7. Imagine you are the CEO of International Paper, one of ten international producers of printing paper. Every year, 1,000,000 kg of printing paper are sold worldwide.
You and your competitors are in perfect price competition. All companies have the same production costs of 500 Euros per 1,000 kg of printing paper and produce printing paper of the same kind and quality. The paper is sold in units of 1,000 kg.
You receive the exclusive offer to buy a license that enables you to use an innovative production process that lowers your production costs by 50%. Your strategic marketing department tells you that everybody will buy your printing paper if you set a price per unit that is 1 Euro lower than your competitors. From your operations department, you know that your company has the capacity to produce 1,000,000 kg of printing paper every year.
You are in the bargaining process for the yearly license fee. What is the value of the innovation (per year) to your company?
(Please type in just a number like 12000 for 12,000 Euros)
8. Imagine a monopolist has the opportunity to implement a process innovation that would reduce its production costs. The process innovation causes some costs.
The probability that another company wants to enter the market is high.
Which of the mentioned effects would you expect to dominate?
9. You are a tire producer in a market with five competitors. All tires are of the same kind and quality. There are 100 consumers who are willing to pay 300 Euros for a set of tires. Currently, all firms in the market have production costs of 200 Euros and set a price of 200 Euros per set of tires.
You are now offered the exclusive rights to implement a process innovation that cuts your production costs by 50%. In order to maximize your profits, you could then set a price that is 1 Euro below your competitors.
What is the value of this innovation to you?
10. Basic Research…