3 $80 A $79 $1 End 80 so Defendo has decided toinoducevide game.As thefr firm in the markes,it will hay ve a monopoly posi ome time.In deciding what type of manufacturing plant to build,it has the choice of two technologies.Technology A is publicly available and will result in annual costs of CA(q=10+8g Technology B is a proprietary technology developed in Defendo's research labs It involves higher fixed cost ofproduction but lower marginalcosts: C(q)=60+24 Defendo must decide which technology to adopt.Market demand for the new product is P=20-Q,where Q is total industry output. a Suppose Defendo were certain that it would maintain its position market for the entir about five y ars)witl o at thre of entry.Which technology would you advise Defendo to adopt? Wha would be Defendo's profit given this choice? Defendo has two choices:Technology A with a marginal cost of 8 and Technology B with a marginal oost of 2 Given the inverse demand curve as P=20-Q,total revenue,PQ.is equal to 200-for both technologies Marginal revenue is 20-2Q. Todetermine the profits for each technobgy,equate marginal revenue and marginal cost 20.2Q=8,orQa=6, and 20.2QB=2,0rQB=9. Substituting the profit-maximizing quantities into the demand equation to determine the profit-maximizing prices,we find: Pa=20.6=$14and PB=20-9=811. Todetermine the profits for each technology,subtract total cost from total revenue: 元4=(14)6-(10+(8)(G)=$26and B=(119(60+②89)=$21. To maximize profits,Defendoshould choose technology A. b.Suppose Defendo expects its archrival,Offendo,to consider entering the market shortly after Defendo introduces its new product.Offendo will have access only to Technology A.If Offendo does enter the market,the two firms will play a Cournot game (in quantities)and arrive at the Cournot-Nashe 3 $ 80 A $79 $ 1 End $ 0 $ 0 $ 0 *10. Defendo has decided to introduce a revolutionary video game. As the first firm in the market, it will have a monopoly position for at least some time. In deciding what type of manufacturing plant to build, it has the choice of two technologies. Technology A is publicly available and will result in annual costs of CA(q) = 10 + 8q. Technology B is a proprietary technology developed in Defendo’s research labs. It involves higher fixed cost of production but lower marginal costs: CB(q) = 60 + 2q. Defendo must decide which technology to adopt. Market demand for the new product is P = 20 - Q, where Q is total industry output. a. Suppose Defendo were certain that it would maintain its monopoly position in the market for the entire product lifespan (about five years) without threat of entry. Which technology would you advise Defendo to adopt? What would be Defendo’s profit given this choice? Defendo has two choices: Technology A with a marginal cost of 8 and Technology B with a marginal cost of 2. Given the inverse demand curve as P = 20 - Q, total revenue, PQ, is equal to 20Q - Q2 for both technologies. Marginal revenue is 20 - 2Q. To determine the profits for each technology, equate marginal revenue and marginal cost: 20 - 2QA = 8, or QA = 6, and 20 - 2QB = 2, or QB = 9. Substituting the profit-maximizing quantities into the demand equation to determine the profit-maximizing prices, we find: PA = 20 - 6 = $14 and PB = 20 - 9 = $11. To determine the profits for each technology, subtract total cost from total revenue: A = (14)(6) - (10 + (8)(6)) = $26 and B = (11)(9) - (60 + (2)(9)) = $21. To maximize profits, Defendo should choose technology A. b. Suppose Defendo expects its archrival, Offendo, to consider entering the market shortly after Defendo introduces its new product. Offendo will have access only to Technology A. If Offendo does enter the market, the two firms will play a Cournot game (in quantities) and arrive at the Cournot-Nash equilibrium