Consider the following highly simplified picture of the personal computer industry. A large number of price-taking firms assemble computer systems; call them computer OEMs (Original Equipment Manufacturers). Each of these firms must buy three inputs for each computer system that it sells

• A variety of components that are themselves supplied competitively and collectively cost the computer OEM $ per computer.
• The Windows operating system, available only from Microsoft, at a price . Microsoft's marginal cost is $
• a Pentium microprocessor available only from Intel, at a price a . Intel's marginal cost is $

Since each computer system requires precisely one operating system andone microprocessor, the marginal cost of a computer to an OEM is $$ + P_M + P_I$$ . Let denote the price of the computer system, the demand for computers is given by