During recent years, MicroChips 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 MicroChips 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.