Question

When the iPod was introduced, Apple’s constant marginal cost of producing its top-of-the-line iPod was \$ 200 (iSuppli), its fixed cost was approximately \$ 736 million, and we estimate that its inverse demand function was p = 600 – 25Q, where Q is units measured in millions. What was Apple’s average cost function? Assuming that Apple was maximizing its short-run monopoly profit, what was its marginal revenue function? What were its profit-maximizing price and quantity, profit, and Lerner Index? What was the elasticity of demand at the profit-maximizing level? Show Apple’s profit-maximizing solution in a figure.

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