1. (8 points) This fall, Samap is releasing its tenth anniversary phone, the iGal X. Before its release, Samap has conducted market research to determine the demand for their new product. They conducted two surveys, one in July and one in August at different prices. The table below has the extrapolated demand from each survey.

Price ($)Estimated demand (millions)

July100090

August950100

(a) (3 points) Estimate the elasticity of demand of the iGal X.

(b) (3 points) The cost of production is estimated to be $500 per phone. What is the profit-maximizing price given your estimate in part (a)?

Between the July and August surveys, Samap confirmed that they were including the "Animoji" feature to complement their facial recognition software. With this new feature, demand for the iGal X is expected to be higher. Participants in the August survey knew about this new feature when responding to the demand survey, while participants in the July survey did not.

(c) (2 points) How would this bias your elasticity estimate in part (a)? Explain.