Consider the cost function C(Q) = 25000 + Q2 (or MC= 2Q) forApple Inc. to produce the iPhone. Note that the company has fixedcosts of $25,000. Also, the demand for Apple’s iPhone is given by P= 400 - 3Q (and its MR = 400 - 6Q).
Using that cost function for the iPhone, determine the profitmaximizing output and price for the iPhone as well as profits, anddiscuss its long-run implications, under three alternativescenarios. (Hint: Use Hand-written Class Notes to answer thesequestions.)
a. Apple’s iPhone is a perfect substitute with the MotorolaDroid and several other smart phones that have similar costfunctions and that currently sell for $200 each (as in perfectcompetition model). Should the company stay in business in thelong-run?
b. Apple’s iPhone has no substitutes and so is a monopolist,and the demand for the iPhone is expected to forever be P = 400 -3Q (or Q = 133.33 – (1/3)P) (as in monopoly) Should the companystay in business in the long-run?
c. Apple’s iPhone currently has no substitutes, and currentlythe demand for the iPhone is P = 400 - 3Q (or Q = 133.33 – (1/3)P),but Apple anticipates other firms to produce close substitutes inthe future (as in monopolistic competition in the future) Shouldthe company stay in business in the long-run?
d. If it operates in an oligopolistic market, how can Appleuse price and non-price strategies (methods of competition) tocompete effectively in the smart-phone market? (No need forcalculations)
