Apple and Microsoft compete in an oligopolistic market for laptop computers. For simplicity, suppose that they are the only two producers in the market. The inverse demand function for laptops is given by P=1400 - Q/2 and each laptop can be produced at a constant marginal cost of $200.

a) If Apple and Microsoft chose their quantities simultaneously and do not collude, what will be the profit maximizing quantity for each? What will be the market price? How much profit will each company make?

b) Suppose that a consultant for Apple recommends that they consider an aggressive advertising strategy that would involve vastly outspending Microsoft in order to stake out a larger share of the market. The consultant believes that if Apple undergoes the strategy with a full commitment they will be able to basically move first in the market and set their own quantity, forcing Microsoft to just respond one time to Apple's move. What quantity would Apple produce if they followed this strategy? What quantity would Microsoft produce? What price would prevail in the market?

c) How much should Apple be willing to spend on the advertising strategy suggested in part b. If they are sure it will be effective?