Suppose that all iPod owners consider only two options for downloading music to their MP3 players: purchasing songs from iTunes or copying songs from friends. With these two options, suppose the weekly inverse market demand for the Rolling Stones’ song “Satisfaction” is p = 1.98

- 0.00198Q. The marginal cost to Apple Inc. of downloading a song is zero.

a. What is Apple’s optimal price of “Satisfaction”?

How many downloads of “Satisfaction” does Apple sell each week?

b. Now suppose that Apple sells a version of the iPod equipped with software in which songs played on the iPod must be downloaded from iTunes. For this iPod, the inverse market demand for “Satisfaction” is p = 2.58

- 0.0129Q.

What is Apple’s optimal price of downloads of

“Satisfaction” for this new player? How many downloads of “Satisfaction” does Apple sell each week? M