Suppose that it costs Microsoft $100to develop a new version of Microsoft office, and that it costs Microsoft $20 to produce each copy of the new program (by burning it onto a DVD). Finally, assume market demand for Microsoft Office is given by the following table:
|
MS Office
|
MU
|
|
1
|
80
|
|
2
|
70
|
|
3
|
60
|
|
4
|
50
|
|
5
|
40
|
|
6
|
30
|
|
7
|
20
|
|
8
|
10
|
a. Using a spreadsheet, graph the average total cost and marginal cost of producing 1 to 8 copies of MS office.
b. What is Microsoft's profit or loss if it sells Office at its marginal cost?
c. Luckily for Microsoft it is a monopolist. Graph the demand and marginal revenue curves along with the cost curves. As a monopolist, how many copies of Office will Microsoft produce? What will be the price? And how much will it earn in profits?