5. Marginal revenue is the additionalrevenue that companies make when they sell

Question

5.   Marginal revenue is the additionalrevenue that companies make when they sell more copies of Vista.Think about your answers to the previous questions. You should havefound that the marginal revenue for Microsoft is different from themarginal revenue for computer retailers.

The difference helps to explain why Microsoft earns higher profitmargins than retailers. Every firm sets marginal revenue equal tomarginal cost when making any decision. Because of the differentshapes of their marginal revenue curves, the price at whichMicrosoft sells Vista is ________ its marginal cost, while theprice at which retailers sell Vista is ________ their marginalcost. A.   Greater than; equal to B.   Equal to; greater than C.   Greater than; less than D.   Equal to; less than

Explanation / Answer

A. Microsoft would make maximum profits which is set the the pricewhen MC = MR. Therefore price would be greater than MC, retailerswould set their price = to marginal cost.

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