Suppose the demand curve for a new iPhone is: Ǫd = 300 – 2P + 4Y,...

Suppose the demand curve for a new iPhone is:

Ǫd = 300 – 2P + 4Y, where Y is income in thousands of $.

The supply curve is: Ǫs = 3P – 50

Average cost (AC) = 57 + 0.15Q

Average variable cost (AVC) = 30 + 0.25Q

Required:

1.1. If Y = 25, find the market-clearing price and quantity for the product.

1.2. Owing to the Covid-19 pandemic, the Y of consumers dropped by 40%. Find the new market equilibrium price and quantity.

1.3. Graphically illustrate the demand and supply curves as well as equilibrium price and quantity for the new iPhone before and after the pandemic. (Hint: Determine Q where P = 0 to draw the curves. The slope of the demand curve is not influenced by income.)

1.4. At Y = 25, does the iPhone make a profit? Why or why not?

1.5. Will the iPhone still make a loss and will production be carried on as a result of the Covid-19 pandemic?

1.6. Assume that the iPhone’s total cost (TC) = 6 000 + 50(Q). Determine the loss/profit at Y = 25.

Expert Solution

Rahul Sunny answered 2 years ago

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