Microsoft Corporation decides how many packets of the new operating system (Win- dows 11) it is going to sell on the market. The research (fixed) costs associated with the development of the new system amounts to F =$1000. The variable costs of the packet is negligible C(y) = 0. Microsoft’s inverse demand for the new operating system is given by p(y) = 100 − y. (A) What are the total gains to trade in the market? What would consumer and producer surplus be if Microsoft was a price taker (a competitive firm)? Give exact numbers and show corresponding areas on the graph. (b) Assume that Microsoft cannot discriminate among its customers. Find geometri-
cally and analytically the level of sales that maximizes profit, the market price, and the maximal profit. (c) Is outcome in b) pareto efficient? If not, find the deadweight loss (DWL) geomet-rically and analytically.
(d) Find consumer’s and producer’s surpluses (CS and PS) graphically with a monop-
olistic firm.