Question: During recent years, Micro Chips Corp. has enjoyed substantial economic profits derived from patents covering a wide range of inventions and innovations for microprocessors used

During recent years, Micro Chips Corp. has enjoyed substantial economic profits derived from patents 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 = ∂TR/∂Q = $5,500 - $0.01Q

Fixed costs are nil because research and development expenses have been fully amortized during previous periods. Average variable costs are constant at $4,500 per unit.

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

B. Calculate the price/output combination and total economic profits that would result if competitors offer clones that make the market perfectly competitive.

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A The profitmaximizing priceoutput combination is found by setting MR MC Because AVC is constant ... View full answer

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