VisiCalc, the first computer spreadsheet program, was released to the public in 1979. A year later, introduction of the DIF format made spreadsheets much more popular because they could now be imported into word processing and other software programs. By 1983, Mitch Kapor used his previous programming experience with VisiCalc to found Lotus Corp. and introduce the wildly popular Lotus 1-2-3 spreadsheet program. Despite enormous initial success, Lotus 1-2-3 stumbled when Microsoft Corp. introduced Excel with a much more user-friendly graphical interface in 1987. Today, Excel dominates the market for spreadsheet applications software.
To illustrate the competitive process in markets dominated by few firms, assume that a two-firm duopoly dominates the market for spreadsheet application software, and that the firms face a linear market demand curve
P = $1,250 - Q
Where P is price and Q is total output in the market (in thousands) . Thus Q = QA + QB. For simplicity, also assume that both firms produce an identical product, have no fixed costs and marginal cost MCA = MCB = $50. In this circumstance, total revenue for Firm A is
TRA = $1,250QA - QA2 - QAQB
Marginal revenue for Firm A is
MRA = ∂TRA/∂QA = $1,250 - $2QA - QB
Similar total revenue and marginal revenue curves hold for Firm B.
A. Derive the output reaction curves for Firms A and B.
B. Calculate the Court not market equilibrium price-output solutions.