Msft 1a) Microsoft Competes in a Number

MSFT 1a) Microsoft competes in a number of different market types, depending on the product (Tomlinson, n.d.). In most markets, Microsoft competes in a market characterized by monopolistic competition, with several differentiated players competing for the same business. This is true of operating systems (vs. Apple, Linux); video game consoles (vs. Nintendo, Sony); and servers.

For some of its software applications, such as the Office suite, Microsoft's market is a duopoly is not an outright monopoly as most competitors are so far below Microsoft's standard they are barely competition, and are offered for free as a result. b) Microsoft stock is traded on NASDAQ. This is a market characterized by monopolistic competition, with thousands of investments, all differentiated from one another, competing against each other. The market also has a degree of asymmetric information, and is highly liquid so it reflects publicly known information accurately.

c) The demand curve most likely faced by Microsoft stock is downward sloping. The higher the price of the stock, the less demand there will be for shares of Microsoft. This is because there are low switching costs, good information about MSFT and competing stocks, and because consumers are price sensitive with respect to the price of MSFT stock because they have a sense of the value of the company and compare the stock price to that estimation of value. 2.

a) Competition keeps gas stations from raising their prices because consumers demonstrate some degree of price sensitivity. While this is low with respect to total demand, it is high between gas stations. The reason this is possible is that there are no switching costs for most consumers. They can freely choose between gas stations for their fuel needs. Because gasoline is an undifferentiated product, consumers will choose the gas station with the lowest possible price. Consumers are typically well-informed about the price of gas as well.

Thus, any gas station that increases its price is going to see consumers avoid it. b) The survivorship principle holds that the most efficient producer is the one that will survive in the long run. This is because all gas stations have roughly the same cost structure. As the one that offers the lowest price per gallon is the one that will win the bulk of the business, the one that can afford to offer the lowest profitable price will be that station.

Undercutting the competition requires that the firm have a higher level of efficiency than the competition. Higher buying power would work as well, but for the most part gas stations have very limited buying power. c) In some local markets, gas prices can deviate significantly from the area's equilibrium. In remote areas where there is no competition, a station can charge significantly higher because the opportunity cost of driving to another station is relatively high (high switching cost), offsetting the benefits of getting the lower price.

In markets where competition is high, gas prices may drop below the equilibrium.