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MicroChips Corp has enjoyed substantial economic profits derived from patients covering a wide range of inventions and innovations for microprocessors used in high performance desktop computers. A recent introduction, the Penultimate has proven especially profitable. Market demand and marginal revenue relations for the product are as follows:
P=$5,500-$0.005Q
MR=change TR/changeQ=$5,500-$0.01Q

Fix cost are nil because research and development expenses have been fully amortized during previous periods. Average variable cost are constant at $4,500 per unit.
A.Calculate the profit-maximizing price output combination and economic profits if Microchips enjoys an effective monopoly because of patent protection.
B. Calculate the price-ouptut combination and total economic profits that would result if competitors offer clones that make the market perfectly competitive.

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Solution Summary

MicroChips Corp has enjoyed substantial economic profits derived from patients covering a wide range of inventions and innovations for microprocessors used in high performance desktop computers. A recent introduction, the Penultimate has proven especially profitable. Market demand and marginal revenue relations for the product are as follows:
P=$5,500-$0.005Q
MR=change TR/changeQ=$5,500-$0.01Q

Fix cost are nil because research and development expenses have been fully amortized during previous periods. Average variable cost are constant at $4,500 per unit.
A.Calculate the profit-maximizing price output combination and economic profits if Microchips enjoys an effective monopoly because of patent protection.
B. Calculate the price-ouptut combination and total economic profits that would result if competitors offer clones that make the market perfectly competitive.

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A.Calculate the profit-maximizing price output combination and economic profits if Microchips enjoys an effective monopoly because of patent protection.

MR = MC
$5,500 - $0.01Q = $4,500
0.01Q = 1,000
Q = 100,000
P ...

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