On September 9, 2014, Apple announced its entry into the wearable computing market with the launch...

 

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On September 9, 2014, Apple announced its entry into the wearable computing market with the launch of the Apple Watch. The Apple Watch Team estimated a weekly demand function for the U.S. market (see below). The function included prices of what the team determined to be the most significant competitors for the Apple Watch, in addition to other variables. QAW = -150,000-2400P AW +1520P Gears +1200P pebble - 1200 PiPhone6 +44A QAW is the quantity demanded of the Apple Watch per week. PAW is 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 team determined the following values for the variables at the time of launch: PAW =$349; PGears = $380; Ppebble S220; PiPhone6 = $299; A = $15,500. Discussion Questions (Respond to any two of the following questions) 1. What is the elasticity of demand for the Apple Watch? Interpret its meaning 2. What is the cross-elasticity with respect to the Samsung Gear S? Is the Samsung Gear S a substitute or a complement of the Apple Watch? How do you know that? 3. What is the cross-elasticity with respect to the Pebble? Is the Pebble a substitute or a complement of the Apple Watch? How do you know that? 4. What is the cross-elasticity with respect to the iPhone? Is the iPhone a substitute or a complement of the Apple Watch? How do you know that? 5. Based on the advertising elasticity, would you advise the Apple Watch team to have a large or a small advertising budget? On September 9, 2014, Apple announced its entry into the wearable computing market with the launch of the Apple Watch. The Apple Watch Team estimated a weekly demand function for the U.S. market (see below). The function included prices of what the team determined to be the most significant competitors for the Apple Watch, in addition to other variables. QAW = -150,000-2400P AW +1520P Gears +1200P pebble - 1200 PiPhone6 +44A QAW is the quantity demanded of the Apple Watch per week. PAW is 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 team determined the following values for the variables at the time of launch: PAW =$349; PGears = $380; Ppebble S220; PiPhone6 = $299; A = $15,500. Discussion Questions (Respond to any two of the following questions) 1. What is the elasticity of demand for the Apple Watch? Interpret its meaning 2. What is the cross-elasticity with respect to the Samsung Gear S? Is the Samsung Gear S a substitute or a complement of the Apple Watch? How do you know that? 3. What is the cross-elasticity with respect to the Pebble? Is the Pebble a substitute or a complement of the Apple Watch? How do you know that? 4. What is the cross-elasticity with respect to the iPhone? Is the iPhone a substitute or a complement of the Apple Watch? How do you know that? 5. Based on the advertising elasticity, would you advise the Apple Watch team to have a large or a small advertising budget?

Answer rating: 100% (QA)

Lets start by calculating the elasticity of demand for the Apple Watch using the given demand function QAW 150000 2400PAW 1520PGearS 1200PPebble 1200PiPhone6 44A To calculate the elasticity of demand ... View the full answer