Q 3 4 5 solution needed 1) Using the scenario listed below Figure 1, write a demand function where demand for Apple Watch is a function only of the price of Apple Watch. 2) Estimate the average variable cost from Exhibit 2 and section on cost considerations. What assumptions underlie the estimate? 3) What is your best estimate of marginal cost? What assumptions underlie the estimate? 4) Assume Apple incurs a fixed cost of $1million. Use the previous estimated demand function and cost estimates to find the profit maximizing price. Would you recommend that Apple raise or lower prices from $349? 5) What is the revenue maximizing price? Is this higher or lower price compared to the one that maximizes profits? 6) Suppose fixed costs increase to $5 million. What is the new profit maximizing price? Is it higher, lower, or the same as before?
Q 3 4 5 solution needed 1) Using the scenario listed below Figure 1, write a demand function where demand for Apple Watch is a function only of the price of Apple Watch. 2) Estimate the average variable cost from Exhibit 2 and section on cost considerations. What assumptions underlie the estimate? 3) What is your best estimate of marginal cost? What assumptions underlie the estimate? 4) Assume Apple incurs a fixed cost of $1million. Use the previous estimated demand function and cost estimates to find the profit maximizing price. Would you recommend that Apple raise or lower prices from $349? 5) What is the revenue maximizing price? Is this higher or lower price compared to the one that maximizes profits? 6) Suppose fixed costs increase to $5 million. What is the new profit maximizing price? Is it higher, lower, or the same as before?
Q 3 4 5 solution needed 1) Using the scenario listed below Figure 1, write a demand function where demand for Apple Watch is a function only of the price of Apple Watch. 2) Estimate the average variable cost from Exhibit 2 and section on cost considerations. What assumptions underlie the estimate? 3) What is your best estimate of marginal cost? What assumptions underlie the estimate? 4) Assume Apple incurs a fixed cost of $1million. Use the previous estimated demand function and cost estimates to find the profit maximizing price. Would you recommend that Apple raise or lower prices from $349? 5) What is the revenue maximizing price? Is this higher or lower price compared to the one that maximizes profits? 6) Suppose fixed costs increase to $5 million. What is the new profit maximizing price? Is it higher, lower, or the same as before?
1) Using the scenario listed below Figure 1, write a demand function where demand for Apple Watch is a function only of the price of Apple Watch.
2) Estimate the average variable cost from Exhibit 2 and section on cost considerations. What assumptions underlie the estimate?
3) What is your best estimate of marginal cost? What assumptions underlie the estimate? 4) Assume Apple incurs a fixed cost of $1million. Use the previous estimated demand function and cost estimates to find the profit maximizing price. Would you recommend that Apple raise or lower prices from $349? 5) What is the revenue maximizing price? Is this higher or lower price compared to the one that maximizes profits? 6) Suppose fixed costs increase to $5 million. What is the new profit maximizing price? Is it higher, lower, or the same as before?
Definition Definition Measure of the cost of production per unit of output, including only variable costs such as wages, materials, and utilities. AVC is calculated by dividing total variable cost by the number of units produced. Understanding average variable cost is important for businesses to make decisions on pricing, production levels, and profitability.
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