Marginal revenue is the additional revenue that companies make when they sell more coples of Vista. Think about your answers to the previous questions. You should have found that the marginal revenue for Microsoft is different from the marginal revenue for computer retailers.

The difference helps to explain why Microsoft earns higher profit margins than retailers. Every firm sets marginal revenue equal to marginal cost when making any decision. Because of the different shapes of their marginal revenue curves, the price at which Microsoft sold Vista was ........................... its marginal cost, while the price at which retailers sold Vista was ........................ their marginal cost.

Every firm sets marginal revenue equal to marginal cost when making any decision. Because of the different shapes of their marginal revenue curves, the price at which Microsoft sold Vista was greater than its marginal cost, while the price at which retailers sold Vista was equal their marginal cost.

We can say that Microsoft has the Monopoly and the retailers have perfect competition. The perfectly competitive firms maximize its profit when the price is equal to the marginal cost and at that point, the marginal cost of competitive firms is also equal to the marginal revenue because the demand curve of the competitive firms is same as marginal revenue. But the monopoly maximizes its output when marginal revenue is equal to the marginal cost. So the equilibrium level of quantity is when marginal revenue is equal to the marginal cost. At that level of output for monopoly, the price is greater than the Marginal cost. This is all because there is a difference between the marginal revenue curve of monopoly and the marginal revenue curve of the perfectly competitive firms. Also, the perfectly competitive firms are a price taker, the price is set by the demand and supply and the monopoly (Microsoft) is price maker they set their own price according to their profit-maximizing conditions.