Question

The producer of a downloadable antivirus software program spends exactly $3,150,000 producing the first copy and incurring various costs required to make the software "user-friendly." The firm can produce and distribute additional copies at a per-unit cost of $2.00. If the company sold as many copies as consumers wished to purchase at a price of $2.00 per copy, it would sell 425,000 copies. If the company maximizes its economic profits in the short-run, it sells 225,000 copies at a price of $40. Finally, the company earns zero economic profits when it sells 275,000 copies. What are the firm's economic profits (or losses) if it sells 425,000 copies of the antivirus software program at a $2.00 price per copy? $ What are the maximum economic profits that the firm can earn in the short run? $ What is marginal revenue when the firm maximizes its short-run economic profits? $ In the long run, after entry of competing firms, to the nearest dollar, and including the correct sign, what amount of economic profits will this firm earn? $

Answer 1

3,149,998
(TR = P*Q = 2*(425,000) = 850,000
TC = 3,150,000 + 2(425,000 - 1) = 3,150,000 + 849,998 = 3,999,998
Profit = TR - TC = -3,149,998 = Loss)

5,400,002
(TR = P*Q = 40*(225,000) = 9,000,000
TC = 3,150,000 + 2(225,000 - 1) = 3,150,000 + 449,998 = 3,599,998
Maximum Profit = TR - TC = 5,400,002)

$2
(Profit is maximized when MR = MC. As MC = 2. So, MR = 2)

0
(In long run, firms earn zero economic profits.)