3. SPACE HOTEL PATENT: Suppose the demand for space hotel stays is P = 20 – Q. Currently, space hotel services do not exist, though we could assume they do exist, but at a prohibitively high cost. Assuming constant MC = ATC = 25, draw the graph and find Q*. b. a. Now Branson and some engineering pals invent a space hotel and get a patent that guarantees temporary monopoly rights. If constant MC = ATC = 16, find Q*, P*, profit, CS and DWL for this period. Next, Musk discovers a rocket technology that simplifies transportation to the space hotel, reducing constant marginal costs and average costs from 16 to 8. Now how much is the monopoly worth? d. с. Finally, suppose MacKenzie considers acquiring the whole operation when annual profit has settled at $16m and there are 10 years left of patent profit. She would have to spend $25m today (at time t=0) to make some technical changes, and could start collecting the annual profits beginning next year, at time t=1. Use the annuity formula to find the value of this investment assuming that the relevant discount rate is 15%. Just write down the equation we would solve.

3. SPACE HOTEL PATENT: Suppose the demand for space hotel stays is P = 20 – Q. Currently, space hotel services do not exist, though we could assume they do exist, but at a prohibitively high cost. Assuming constant MC = ATC = 25, draw the graph and find Q. b. a. Now Branson and some engineering pals invent a space hotel and get a patent that guarantees temporary monopoly rights. If constant MC = ATC = 16, find Q, P*, profit, CS and DWL for this period. Next, Musk discovers a rocket technology that simplifies transportation to the space hotel, reducing constant marginal costs and average costs from 16 to 8. Now how much is the monopoly worth? d. с. Finally, suppose MacKenzie considers acquiring the whole operation when annual profit has settled at $16m and there are 10 years left of patent profit. She would have to spend $25m today (at time t=0) to make some technical changes, and could start collecting the annual profits beginning next year, at time t=1. Use the annuity formula to find the value of this investment assuming that the relevant discount rate is 15%. Just write down the equation we would solve.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter7: Nonlinear Optimization Models

Section: Chapter Questions

Problem 56P

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