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This document summarizes partial equilibrium models of research and development (R&D) and innovation. It discusses how firms behave when innovating to reduce costs and how consumers respond. A Dixit-Stiglitz model with love of variety is used, where innovation increases the number of goods. Demand is isoelastic and the elasticity determines profits and equilibrium. Firms price with a markup over costs and the aggregate price index falls as the number of goods rises, increasing utility for a given expenditur

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yassse

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EN