Apple outsources production of iPhones, iPads, and other electronic devices to Taiwanese contract manufacturer, Foxconn, with 800,000 workers at factories in Shenzhen, Chengdu, and other locations in China. Faced with increased competition for labor, Foxconn has raised wages and increased benefits for its workers. In April 2012, Samsung sued Apple for violating various Samsung patents to produce mobile phones. (Sources: "Foxconn to raise salaries 20% after suicides", Financial Times, May 28, 2010; "Samsung Sues Apple on Patent-Infringement Claims as Legal Dispute Deepens", Bloomberg, April 22, 2011.)

(a) Using a suitable figure, explain how Apple should set the production and price of the iPhone to maximize profit.(Hint: You are free to assume any data necessary to draw the figure.)

(b) Using your figure in (a), explain how Apple should adjust its production and price if Foxconn raises its prices for contract manufacturing.

(c) Suppose that Apple must pay Samsung a royalty on each mobile device produced. How should Apple adjust its production and price in response to the royalty?

(d) How would you change the answer to (c) if Apple must pay Samsung a lump sum in damages rather than a royalty per unit produced?