In November 2007, Amazon introduced the Kindle, the first successful reading device for electronic books. The price was a daunting $399. In 2009, the company dropped the Kindle's price to $259 and in mid-2010 to $189. (Today, minimalist versions of the Kindle are priced under $100.) Though Amazon is notoriously secretive about the Kindle's sales, revenues, and costs, financial analysts estimated annual sales to be approximately 1 million units at the $259 price.

a. The sales figures listed above imply that the Kindle's (linear) inverse demand curve is described by the equation: P = 294 35Q. What are the quantities when price is equal to $259 and $189 respectively.

b. In 2010, the marginal cost of producing the Kindle was estimated at $126 per unit. Apply the MR = MC rule to find the output and price that maximize Kindle profits.

c. Considering that each Kindle sold generates $100 in e-book profits, determine Amazon's optimal quantity and price with respect to the total profit generated by Kindle and e-book sales. What is the implication for Amazon's pricing strategy?

Answer rating: 100% (QA)

a To find the quantities when the price is equal to 259 and 189 we can use the inverse demand curve ... View the full answer