Question

In: Economics

As the Apple Watch team planned for their US launch for the first quarter of 2015,...

As the Apple Watch team planned for their US launch for the first quarter of 2015, an estimated monthly demand function for the US market was derived as shown in Figure 1:

QAW =-150,000 -2400PAW +1520PGearS +1200PPebble -1200PiPhone6 +44A

Where QAW is the quantity demanded of the Apple Watch per month, PAWis the price of the Apple Watch (dollars per unit), PGearS is the price of the Samsung Gear S watch (dollars per unit), PPebble is the price of the Pebble Steel (dollars per unit), PiPhone6 is the price of the mid-range iPhone 6 smartphone (dollars per unit), A is the quarterly targeted advertising budget for the Apple Watch (in thousands of Dollars per quarter). The estimated values are:PAW = $349, PGearS = $380, PPebble = $220, PiPhone6 = $299, A = $15,500 . Calculate the following.

  1. Calculate the Monthly estimated Quantity demanded for Apple Watch QAW
  2. Use the relevant information from the estimated monthly demand function to calculate the elasticity values for each of the explanatory variables and interpret what the numbers mean.
  3. Construct the Demand equation, Inverse Demand Equation
  4. If the Marginal cost is assumed to be constant at $178, calculate and compare the Profit Maximizing Price and Quantity with the Revenue Maximizing Price and Quantity. Comment on your findings.

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Expert Solution

Rahul Sunny answered 1 year ago
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