'J- 'I \"I 'IIIH: I'J "Prll Epic Games, the owners of the popular Fortnite video game, and Apple are in a bit of a fights. Epic sells virtual currency within Fortnite. For the Mac version of Fortnite, Apple has been taking 30% of all revenue earned by Epic from these sales. Epic recently decided to leave what it called the Apple 'monopoly' and sell virtual currency directly to Fortnite players, bypassing Apple's fee. At the same time, it has permanently lowered the price of its virtual currency by 20%7. Epic claims this is good for its players, and good for society. In this question, you will evaluate this claim in a simple model that keeps much of the flavour of the real-world spat. a. REGULAR (Comparing surpluses) Let's start with a very standard, very simple setup. (Inverse) demand for virtual currency is given by P(Q) = 100 Q. At least one game critic has suggested that the marginal cost virtual currency is zero, so let's go with that. I'm going to ask you to study and compare two situations: BEFORE Epic's split with Apple, and AFTER Epic's split with Apple. BEFORE Epic's split with Apple: We know Apple charges a fee of 30% of Epic's revenue. Epic's revenue8 is (1 30%) x P(Q) x Q = 70% x (100 Q) x Q. Epic's marginal cost is zero. Assume that Epic chooses its price like a monopolist (in this case, a monopolist facing a 'tax' by apple.) Assume that Apple faces no costs whatsoever, and this 'tax' it charges Epic is essentially free money for Apple9. AFI'ER Epic's split with Apple: Epic no longer has to pay Apple's 'tax'. Epic's revenue is P(Q) x Q = (100 Q) x Q. Assume that Epic sets a price equal to 80% of the price it set before the split with Apple. This is the price that Epic has announced to the world. However, in our simple model, it is impossible for this to be a profit-maximizing price for Epic, as long as Epic's marginal costs are zero\")