Economics: The Basics 1st Edition by Mike Mandel

Exercise 9

Imagine that a company has a monopoly on video game sales in a country. That is, it is the only company allowed to develop and sell new video games. The company has a choice: It can spend $100,000 to slightly update its best-selling game, or $100 million to write a completely new game, which might or might not be a success.
a) As a monopolist, explain which choice the company might make.
b) Now suppose the video game company faces new competition, in the form of a hot new game imported from another country. Explain which choice the company might make.