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The Case:

In 1976, Steven jobs, then 20 years old, dropped out of college and, with a friend, developed a prototype desktop computer. With financing from an independent investor, the Apple Computer Company was born, revolutionizing the computer industry. Sales of Apple computers jumped from $3 million in 1977 to more than $1.9 billion in 1986, with profits of more than $150 million. The immense success of Apple was not lost on potential competitors, and by 1984, more than 75 companies had jumped into the market. Even IBM, which had originally chosen not to enter the market, soon put all its weight and muscle behind the development of its own version of the personal computer, the IBM PC. Similarly, Michael Dell first built and sold personal computers from his dorm room at the University of Texas in 1984 at the age of 19. Dell Computer Company was initially started from $1000. 4 years later, shares of Dell stock were sold for $8.50 and the IPO raised $30 million. Dell's name rings from the desktop to the data center. It is the world's #3rd supplier of PCs that provides a broad range of technology products for the consumer, education, enterprise, and government sectors. Dell was ranked #33 in Business Week’s Top 100 Brands, #34 on the 2008 Fortune 500 list, and was received 400 product awards in 2007. Another name in the computer industry is of Microsoft Corporation, an American multinational software corporation, founded by Bill Gates and Paul Allen, on April 4, 1975. It deals with the development, manufacturing, licensing and supporting of a wide range of computer related products and services. It is the world's largest software maker company in terms of revenues and also included among the world's most valuable companies. Microsoft announced in June 2012, that it would be entering the PC vendor market for the first time with the launch of the Microsoft Surface tablet computer. As of year 2013, it is the market dominant company in both the PC operating system and Microsoft Office. The company also produces a wide range of other Softwares for desktops and servers. Standard and Poor's and Moody's have both given AAA rating to Microsoft.


Carefully read the cases of world’s three major computer industries, Apple, Dell and Microsoft and point out which theory of profit perfectly fits on this case and why? What are the factors that cause these companies to earn above normal profits? Highlight those factors in the light of all theories of profit that you have studied in your managerial economics course.

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Replies to This Discussion

Managerial decision making for choosing right thing for the right time was the competitive edge for that companies.
Differentiation through copy right . .
Differentiated product produce by the Microsoft that creates the frictional profits on Dell and apple computers.

I think in this case innovation theory is used because in every new era new technology is introduced by these companies and that's why they are earning above normal profit. Kindly discuss on it. Did I present accurate idea?

Admin..why you only considering one theory...? There are more than 1 in this case.....

I kind off disagree!!

Microsoft may have started with innovation at initial stage but then many comparators came into play. Even than Microsoft, Apple had Lion's share because they had made people addicted of their own products. The only reason for huge profit was "non-Compatibility" & "Licensing" bonding to keep existing users stick and left no other options for comparators.

Whereas Dell didn't bring any innovation but just their product line, suitable enough to get compatible for all slimier alternatives and Public opted it. 

Now, plz look-into the question, We have to consider all 3 firms to support our answers.   All three may have started with Innovation but continues with monopoly only.


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