Qaestien 3) Sotmiono is a monopelist in the market for computer operating system

Question

Qaestien 3) Sotmiono is a monopelist in the market for computer operating systems The graph below dapicts the demand curve facod by Softmicro as well as Softmicro's marginal 500 130 a. Seftmicro's CLOistryng todccide whether to charge $50, Stesnor SSD for its operating system Which price should she choos? Why? Show your work and explain carefully your easoning b.the CEO does decide to charge the price you chose in part (al what will social welfare be c. If this market was perfectly competisive and the MC curve repeesented the makct sapply ourve, what would social welfare be? d. Comparing your answers to (b) and(c does it look lke the cxistence ofa monopoly causcs a deadweight loss? Why or why nolt? Explain clearly

Explanation / Answer

a) We know that monopolist will be profit maximizing when it produces according to the rule MR = MC. We are not given MR but we have four choices for price level 50, 60, 70 or 80.

Hence a choice of price = 70 or 80 both have a profit of 3000 and so profit is maximized (remains constant) at a price of 80

b) Social welfare = CS + PS

CS = 0.5*(100 - 80)*50 = 500

PS = 0.5*20*50 + 60*50 = 3500

Hence social welfare is 4000

c) Pure competition has Q* = 125 and P* = 50 Social welfare in case of pure competition would have been 0.5*100*125 = 6250

d) There is a deadweight loss of 6250 - 4000 = 2250. because Social welfare in case of pure competition is higher than for a monopoly

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