Question: In addition to the hard-drive-based iPod, Apple produces a flash-based audio player. Its 512MB iPod Shuffle (which does not have a hard drive) sold for

In addition to the hard-drive-based iPod, Apple produces a flash-based audio player. Its 512MB iPod Shuffle (which does not have a hard drive) sold for $99 in 2005. According to iSuppli, Apple's per-unit cost of manufacturing the Shuffle was $45.37. What was Apple's price/marginal cost ratio? What was its Lerner Index? If we assume (possibly incorrectly) that Apple acted like a short-run profit-maximizing monopoly in pricing its iPod Shuffle, what elasticity of demand did Apple believe it faced?

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