Question

The producer of a downloadable antivirus software program spends exactly ​$2 comma 650 comma 000 producing the first copy and incurring various costs required to make the software​ "user-friendly." The firm can produce and distribute additional copies at a​ per-unit cost of ​$1.00. If the company sold as many copies as consumers wished to purchase at a price of ​$1.00 per​ copy, it would sell 425 comma 000 copies. If the company maximizes its economic profits in the​ short-run, it sells 225 comma 000 copies at a price of ​$40. ​Finally, the company earns zero economic profits when it sells 275 comma 000 copies.

What are the​ firm's economic profits​ (or losses) if it sells 425 comma 000 copies of the antivirus software program at a ​$1.00 price per​ copy? ​$ -2,650,000 .

What are the maximum economic profits that the firm can earn in the short​ run? ​$ 6,125,000 . What is marginal revenue when the firm maximizes its​ short-run economic​ profits? ​$ 1.00 .

In the long​ run, after entry of competing​ firms, to the nearest​ dollar, and including the correct​ sign, what amount of economic profits will this firm​ earn? ​$ 0 0.

Answer 1

a).

Here the fixed cost of software production is “$2,650,000” and the variable cost is “$1*Q”. If the producer produce 425,000 copies and charge $1 the associated economic profit is given by.

=> A = TR – TC = $1*425,000 – [$2,650,000 + $1*425,000] = (-$2,650,000).

=> A= (-$2,650,000).

b).

To maximize economic profit the producer should charge “P=$40” and should sale “Q=225,000”. So, the SR economic profit of the producer is given by.

=> A = TR – TC = $40*225,000 – [$2,650,000 + $1*225,000] = $9,000,000 – $2,650,000 - $225,000.

=> A = $6,125,000 > 0.

Here the price is $40, => if the producer produce additional unit of output then the additional revenue is $40.

c).

In the LR new firms will enter in to the industry, => in the LR all the existing firm will get normal economic profit which is zero. So, if the LR production is “Q=275,000, => LR price is given by.

=> A = P*Q – [2,650,000 + $1*Q] = 0, => P*Q = 2,650,000 + Q.

=> P = 2,650,000/Q + 1, => P = 2,650,000/275,000 + 1= 10.64, => P = $10.64.

So, in the LR the associated price reduce to $10.64 and the economic profit is $0.