The market demand for computer operating systems is given by: Q (millions of operating system pa

Question: The market demand for computer operating systems is given by:

Q (millions of operating system packages per year)	P ($ per operating system)
10	0
9	100
8	200
7	300
6	400
5	500
4	600
3	700
2	800
1	900
0	1000

The following table shows annual variable production costs for operating systems, per unit produced.

Variable Input	Variable Costs (per operating system)
Labour	200
Plant and equipment	100
Overhead	100

In addition, the fixed cost of producing operating systems is $500 million per year.

a) Graph the market demand, the marginal cost of production, and average total cost of production.

b) What sort of market structure would you expect to develop in the market for operating systems? Why?

c) Consider a situation in which a single firm (Compsystems) is the only producer of operating systems in this market. Calculate the marginal revenue that Compsystems receives from selling operating systems, and graph the marginal revenue curve along with the demand curve.

d) Under the circumstances described in part (c), what will the equilibrium quantity and price of operating systems be? How much would a firm be willing to spend to achieve the position Compsystems has in this market?

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