2.7 When Apple introduced its first portable media player, the iPod, its constant marginal cost of producing the top-of-the-line model 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. (Hint: See Q&A 9.2.)