Consider a simplified version of the Windows PC market, where the demand for a Windows Computer (Q) is given as a functi

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Consider A Simplified Version Of The Windows Pc Market Where The Demand For A Windows Computer Q Is Given As A Functi 1 (382.43 KiB) Viewed 58 times

Consider a simplified version of the Windows PC market, where the demand for a Windows Computer (Q) is given as a function of its price (Pc): Q = 120 – 2PC Windows Computers are the final good, produced in a perfectly competitive market. The production process needs two intermediate inputs - a copy of Microsoft Windows and a Processor. Thus, the price of a Computer (PC) as a function of the price of a copy of Microsoft Windows (Pm) and the price of a Processor (Pp) is given by Pc = 20+ PM + Pp Note that for markets to clear, an equilibrium condition is that the total quantity in each intermediate market must equal the total quantity in the computer market. Microsoft, a monopolist in the Windows Computers market, aims to maximize profits by the choice of Pn. Since Microsoft simply sells a software license, their marginal cost for a copy of Microsoft Windows is zero. Assume fixed costs are ignored in Microsoft's decision. (1) Write down Microsoft's maximization problem. (2) Derive the first-order condition for profit-maximization. !