Two medical laboratories (lab 1 and lab 2) join forces to develop a new antibiotic. Each laboratory must decide how many researchers to assign to the joint project. The more researchers they assign to this project, the faster they will be able to develop and supply the new medicine. But, at the same time, other projects will be left on stand-by as they reallocate their staff to the joint project. Laboratory 1 has slightly more expertise in the science that is required for the antibiotic. This is captured assuming that each scientist it assigns to the project can contribute slightly more than those assigned by laboratory 2. Specifically, estimations show that when lab 1 assigns r, researchers and lab 2 assigns r, researchers to the project, it leads to an overall revenue worth €X which is given by X = 120(2r, + r2). Estimations also show that laboratory i faces a cost from having to leave some projects on stand-by which is given by 3(r¡)².
Two medical laboratories (lab 1 and lab 2) join forces to develop a new antibiotic. Each laboratory must decide how many researchers to assign to the joint project. The more researchers they assign to this project, the faster they will be able to develop and supply the new medicine. But, at the same time, other projects will be left on stand-by as they reallocate their staff to the joint project. Laboratory 1 has slightly more expertise in the science that is required for the antibiotic. This is captured assuming that each scientist it assigns to the project can contribute slightly more than those assigned by laboratory 2. Specifically, estimations show that when lab 1 assigns r, researchers and lab 2 assigns r, researchers to the project, it leads to an overall revenue worth €X which is given by X = 120(2r, + r2). Estimations also show that laboratory i faces a cost from having to leave some projects on stand-by which is given by 3(r¡)².
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter17: Making Decisions With Uncertainty
Section: Chapter Questions
Problem 10MC: You are considering entry into a market in which there is currently only one producer (incumbent)....
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