You are evaluating a research and development program for a new production process that will reduce the cost of producing a particular type of plastic. Demand for the plastic is given by Q=2000-10p, where p is the price per ton. If you adopt the process the marginal cost of production will be a constant $100/ton, with no fixed costs other then the cost of the R&D program. Your companies current marginal cost is 175/ton. The R&D required to commercialize the new production process will cost $20000.
There is one other firm, Dupont, that produces the same plastic and you compete with dupont as Bertrand-Nash competitors. You know that Dupont has a constant marginal cost that is either $125 or $175 per ton (Depending on Dupont's technology, which you do not know).
(A) Would it be profitable to develop the new production process if Dupont has a MC of $125/ton? Explain
(B) would it be profitable to develop the new production process if Dupont has a MC of $175/ton? explain