Question

Please indicate the right answer and explain. Thank you!

Click on the icon to read the news clip, then answer the following questions The graph shows the market for Microsoft Windows. Price (dollars per copy) 800 The graph will plot data needed to answer this question. If the marginal cost of makgaoy of the full version of Windows that includes Interned Explorer (IE) is zero, Microsoft will set the price of Windows at Sper copy. If the average fixed cost of stripping IE from Windows is $80 per copy, Microsoft will set the price of Windows stripped of IE at S per copy If the marginal cost of stripping IE from Windows is $80 per copy, Microsoft will set the price of Windows stripped of IE at 320 per copy 160- in Microsoft's self-interest to set a different price for a version stripped of IE if the marginal cost of producing the stripped version differs from the version that includes IE. MR Quantity (thousands of copies of Windows per month) >Click on the graph to work out the answer

Answer 1

Solution:

1. The equilibrium condition is MR = MC. In this case, MC = 0. MR cuts the quantity axis at quantity = 50. The corresponding point on the demand curve i.e. price = $400.

2. Since equilibrium condition depends only on the equality of MR and MC and average fixed cost has no role in equilibrium, the price will be $400 as MC = 0

3. At MC = 80 corresponding point on the demand curve shows that the price = $440.

4. Since MC differs for different versions, it is must for Microsoft to charge different prices.