Microsoft Economic Analysis
Introduction
1. Name and brief description of the firm:
a. Microsoft and their “Windows” product line.
Body
2. Describe in detail the company’s product line in terms of:
a. Product description and usage: My specific topic is Microsoft’s “Windows” product.
b. Factors that determine the demand for products and detail the future outlook of the demand curve.
c. Factors that determine the supply of the products and detail the future outlook of the supply curve.
d. Available substitutes for the product and demand for the same
e. Available complements for the product and demand for the same.
f. Is demand for the product elastic or inelastic in the short run? In the long run? This will require detailed analysis.
g. Is the firm’s production capital-intensive or labor-intensive? Why is technology important in producing this product? Is there technology that can update or replace the current usage?
Instructor Note: this set of questions requires varying levels of detail. For example, question 2F (demand elastic or inelastic) has multiple factors for analysis and response and will therefore require a lengthy explanation.
3. In which of the four market structures does this firm operate?The four structures are: perfect competition, monopolies, oligopolies, and monopolistic competition. Describe the attributes of the firm’s market that show why that is the relevant market structure. I believe Microsoft Windows is a monopoly.
Conclusion
4. In your opinion:
a. What are the long-term prospects for the firm?
b. What changes do you think should be made in order to become even more profitable?
c. Explain how the aforementioned issues addressed in the body of your essay support your understanding of the company’s future prospects and how they support your suggestions for how the company may be made more profitable in the future.
d. Be sure to defend your assessment with relevant research.
Solution
Microsoft Corporation
Microsoft Corporation is a leading computer software organization in America. Microsoft develops and sells a variety of computer software applications across the globe. Microsoft’s Windows operating system (OS) is the most common operating system for personal computers worldwide. In the fiscal year ending June 1996, the organization realized accumulated revenue was $ 8.7 billion. The organization enjoys a massive employee base of about 27,000 human force distributed in 60 nations. Microsoft organization headquarters is in Redmond, Washington DC.
Microsoft has numerous products, such as the word processor, Excel spreadsheet program, and PowerPoint, useful in making business presentations. These products are part of the Microsoft Office, which are sold disjointedly from Microsoft Windows. The organization also provides Back Office that involves incorporated server products for organizations.
William H. Gates 111 and Paul Allen established Microsoft in 1975. Microsoft has continued to produce new products from time to time. In 1985, for instance, the organization produced windows operating system that incorporated facets of MS-DOS took on a graphical user interface. After that, there have been systematic releases of different Windows with enhanced features from windows 10. The organization gained international recognition and dominance and was accused of undertaking monopolistic business practices (Jenkins & Bing, 2007). For instance, in 1990, the Federal Trade Commission in the United States set up an investigation to determine whether the organization was undertaking anti competitive practices. There was no evidence and the investigation was dropped.
Microsoft and Windows product is monopolistic. This means that the organization is a single seller of the product. Microsoft faces a downward slopping demand curve, which features a price maker. This implies that the organization can change the price of its product along the demand curve since it is the only sole vendor for the product. In a perfect competition situation, the competitors are part of price takers, which give buyers other options in purchasing products since there are multiple providers (Whish, 2003). The characteristics of a monopolistic organization should be discussed before coming up with demand and supply curve for the organization.
First, the organization enjoys a single supply of windows product hence the implication of the word mono. The advantage enjoyed by the organization is that it is a single seller of the product in the market. This means that the demand for the product is equal to the output produced by the organization. Microsoft is, therefore a price maker in the market price determination rather than price taker.
Furthermore, the product, Windows, produced by the organization is exclusive. There are no matching substitutes. Microsoft is a huge software monopoly in the personal computer operating system. There is also a restricted entry of other organizations in the production of the product. The barriers are as a result of government licensing barriers, copyright, and resource ownership. Another feature that makes Microsoft organization a monopoly is the control of secret production information of the windows product. This information could be a secret technique or an exceptional procedure. Microsoft organization enjoys this confidential information, which is the procedure used to develop the windows system.
Based on the characteristics of the organization, Microsoft maintains better profits as a monopolistic organization. The organization will maximize profits by setting output where maximum revenues will equal maximum costs.
Demand Curve for Microsoft.
The demand curve of the organization shows a downward slopping. The implication of this curve is that as the price of the product decreases, the quantity demanded increases. This appears straightforward and different points on the demand curve have different implications.
Several factors determine the supply and demand of Microsoft windows products. Under normal economical conditions, a supply and demand framework incorporates many buyers and sellers in a market situation. The demand of the product is determined by the change in income. Income changes among individuals will have a direct impact on the demand of Microsoft windows products. When the economy of a given nation is running well, there will be an increase in personal incomes. As a result, many people will be able to afford Microsoft products hence increasing their demand.
Another factor that will affect the demand of the product is taste and preference. This involves the long run trend among consumers or under the influence of advertising. For instance, Microsoft organization deals in computer services. However, many people are shifting focus from personal computers to client-server technology. As such, the demand for Microsoft Windows personal computers will be affected by this new trend.
Other complimenting products and services can also affect the demand of Microsoft organization windows products. In this case, the organization products are mainly complimented with internet and other cable organization products. The products heavily control the demand of Microsoft windows products both negatively and positively.
Change in the production costs affects the supply of Microsoft windows products. For instance, if the production cost decreases, the supply of the products will increase. Technological alterations also affect the supply of Microsoft Windows products. An increased technological advancement will reduce the overall cost of production hence increasing the supply of the products in the market. Another factor that will affect the supply of Microsoft Windows products is the change in taxes. Increased taxation increases the cost factor of production hence reducing the general supply of the products.
Microsoft windows product line has several substitutes’. Mac OS is a user interface that windows emulated in its creation. It provides a number of software and a well built interface system. It is more secure as compared to windows, a factor that enhanced by its employment of Unix technology.
Linux is another operating system applied in place of Microsoft Windows. It is a free operating system and product useful in solving programming problems and coming up with quality software. Linux incorporates free software. It is not controlled by a single company but has reliable cores called kernel, which are distributed by various organizations. They focus on specific consumer requirements, such as business and home users.
Google Chrome OS is another operating system that is similar to Linux. Its main feature is the portable nature, which is preinstalled to net books. The interfaces are based on Google web browser and utilize technological, online applications, such as Google Docs. This is possible even when the user is not connected online. Another advantage associated with the OS is that it is an open source.
The most compliment product for the Microsoft Windows operating system is the client server technology based on the internet. The web has totally transformed the manner in which computers are used. The internet, for instance, has brought in the need to eradicate non-portable software on personal computers because many consumers prefer web-run software applications (Satran).
Price elasticity of products refers to the measure of responsiveness of a given product’s demand to an alteration in price. Inelastic demand occurs when a change in price has a minimal impact on the demand of a product. On the other hand, the price is inelastic if the change in the price has a huge impact on the demand of the product. For instance, if individuals are used to buying a product as a result of habit, they will tend to purchase the product even if there is an increase in price. This case applies to the Microsoft Windows product. In the event that the organization increases the price of the product, there will be a short-term inelastic demand. This is because many people are used to the product and will opt to pay for it. However, as time goes, people will get tired of paying the high prices and eventually opt for other operating systems.
Microsoft Windows organization is a capital incentive organization due to the higher capital costs involved in its production processes. The costs are fixed in nature. The technological factor is important within the organization as it determines the cost of production and meets consumer preference and need.
The organization future should focus on expanding critical operating systems that target large organizations and other enterprises. This should consider features, such as back office servers, application products, office based systems internet incorporation, and consistent data storage unification. The organization future is obligated to provide technology advancement, operating systems and server connection on PCs, television, and other devices. The revenue from these services may not be the same as the initial revenue and the organization must be prepared to make necessary changes and absorptions.
References
Jenkins, G. T., & Bing, R. W. (2011). Microsoft’s Monopoly: Anti-Competitive Behavior, Predatory Tactics, And the Failure of Governmental Will. Journal of Business & Economics Research (JBER), 5(1). https://clutejournals.com/index.php/JBER/article/view/2508
Whish, R., & Bailey, D. (2012). Competition law. Oxford University Press.