Microsoft charges a price of \$599 for a copy of Windows 7. Is this pricing decision rational from an economic perspective?

• A. Yes, if the price maximizes Microsoft's profit by responding to consumer demand and incentives.
• B. Yes, if the price is set to discourage consumers from purchasing Windows 7.
• C. No, because any price above \$100 is always irrational in software markets.
• D. No, because rational pricing decisions must always be based on production costs alone.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of rational pricing in microeconomics. A pricing decision is considered rational if it aims to maximize the firm's profit by balancing costs, consumer demand, and market conditions.
2. Step 2: Recognize that profit maximization occurs where the firm sets a price based on consumer willingness to pay and the marginal cost of production, not solely on production costs or arbitrary price limits.
3. Step 3: Analyze the options given: pricing to maximize profit by responding to consumer demand and incentives aligns with economic rationality, while setting prices to discourage purchases or ignoring demand and costs does not.
4. Step 4: Recall that prices above a certain arbitrary threshold (like \$100) are not inherently irrational; what matters is whether the price reflects market conditions and profit maximization.
5. Step 5: Conclude that the rational pricing decision is the one where Microsoft sets the price to maximize profit by responding to consumer demand and incentives, as this aligns with microeconomic principles of firm behavior.