Suppose that a technophile is willing to pay $800.00 now for a new iPhone 11, but...

Suppose that a technophile is willing to pay $800.00 now for a new iPhone 11, but is only willing to pay $400.00 if he/she has to to wait a year to buy it. Rest of the general public is willing to $500.00 for a new iPhone 11 whether he/she buys it now or after one year. There are only two time periods and the marginal cost of an iPhone 11 is $250.00. Assume that there are equal number of technophiles and general people. Ignore the time value of money and answer the question as if there is one technophile and one person from the general public.

If the iPhone is priced at $800.00 for today and at $500.00 for sale one year from today, who will buy it?

If the iPhone is priced today at $800.00, how much will be the profit?

If the iPhone is priced at $800.00 for today and at $500.00 for sale one year from today, how much will be the profit?

Expert Solution

Answer :

The willingness to pay for iphone11 by a technophile is $800 today, while general individual will pay just $500. Assuming today, the price for iphone11 is $800, it surpasses the maximum willingness to pay by the general individual (500 < 800), with the goal that individual won't accepting the iphone today, and wait for it the following year.

In the event that the iphone is targeted for technophile for one year from now, when his/her willingness is just $400, which is lower than the price of second time span, and along these lines, technophile won't accepting in second term.

Profit = Price - Marginal cost

Subsequently, technophile will purchase in first period, generating a profit of (800 - 250 =) $550, and general individual will purchase in second time span generating a profit of (500 - 250 =) $250.

In this way, total profit for two periods (disregarding time value of cash) will be 550 + 250 = $800.

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Rahul Sunny answered 8 months ago

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