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20 May, 15:22

In 2015, Apple introduced the Apple Watch. Assume that the cost of producing the 38mm Apple Watch Sport was $88. The price was $331. What was Apple's price/marginal cost ratio? What was its Lerner Index? If Apple is a short-run profit-maximizing monopoly, what elasticity of demand did Apple believe it faced?

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  1. 20 May, 18:30
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    Apple's price/marginal cost ratio, Lerner index, and the elasticity of demand is 3.76, 2.76 and - 0.36 respectively.

    Explanation:

    a. The computation of apple's price / marginal cost ratio is shown below:

    Price / marginal cost ratio = Price : cost

    = $331 : $88 = 3.76

    b. The computation of Lerner index formula is shown below:

    Lerner index = (Price - marginal cost) : price

    = ($331 - $88) : $88

    = $243 : $88

    = 2.76

    c. The computation of elasticity of demand is shown below

    Elasticity of demand = - 1 : Lerner index

    = - 1 : 2.76

    = - 0.36

    Hence, apple's price/marginal cost ratio, Lerner index, and the elasticity of demand is 3.76, 2.76 and - 0.36 respectively.
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