Romer R&D Model: Intermediate Goods Sector

We discuss the intermediate goods sector of the Romer R&D model. This is part 3 - check out the playlist for the previous videos. Intermediate goods firms purchase patents from the research and development sector to gain monopoly power over an intermediate good. They can then produce this good using a unit of rented capital. The good can then be sold to the final goods sector. We derive the profit function and show how this can be made similar to the Solow Growth model.

Check out the Solow Growth Model playlist for past videos to get up to speed with the assumptions and key equations.

Romer, Paul M. “Endogenous Technological Change.” Journal of Political Economy, vol. 98, no. 5, 1990, pp. S71–S102.

Robert M. Solow, A Contribution to the Theory of Economic Growth, The Quarterly Journal of Economics, Volume 70, Issue 1, February 1956, Pages 65–94

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