A Software Company Writes a Better Operating System for Personal

question 11

Multiple Choice

A software company writes a better operating system for personal computers and earns very large profits on this operating system. Which of the following is true?

• A) The profits this firm earns are a return for an innovation.
• B) The profits this firm earns aren't deserved, as the firm did not take any risks.
• C) This firm must not be in a competitive market if it was able to earn a profit.
• D) The firm must be a monopoly.

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs, used to cover fixed costs and to provide profit to the company.

Fixed Costs

Expenses that do not change with the volume of production or sales, such as rent, salaries, and insurance.

Variable Costs

Expenditures that adjust based on the quantity of production or the scale of sales.

Utility Rates

Charges imposed by utility companies for the use of services such as electricity, gas, water, and sewer.