APPLEWATCH (this concentrates on the mathematical part of the readings) (20 Points)

1. How does Lowering the Price of the Apple watch to $225
   1. Calculate the Price Elasticity of Demand for the AppleWatch (this requires you to show your work, calculate the number and explain the results of the Price Elasticity of Demandin effect, is it elastic or inelastic and why)? (7 Points)
   2. Calculate this price reduction on Total Revenue (what is total revenue if the price is $225). Noteuse the demand function to calculate quantity demanded. (7 Points)
2. How would increasing the advertising budget from $15,500 to $25,000 impact (use the original price from the paper and this requires a calculation and a numerical answer)
   1. Quantity Demanded (3 Points)
   2. Profitabilitykeep in mind that the cost of the watches do not increase, only the advertising expense. (3 Points)

QAW = -150,000 - 2400 PAW + 1520Gears + 1200 PPebble - 1200 Piphone6 + 44 A QAW is the quantity demanded of the Apple Watch per week. PAW is the price of the Apple Watch (dollars per unit). . PGears is the price of the Samsung Gear S watch (dollars per unit). Prebble is the price of the Pebble Steel (dollars per unit). . Piphones is the price of the mid-range iPhone 6 smartphone (dollars per unit). . A is the quarterly targeted advertising budget for the Apple Watch (in thousands of dollars per quarter). As the team prepared for launch, they contemplated a scenario with the following variable values: PAW =$349, PGears =$380, Pebble =$220, Piphone6 =$299, A=$15,500. Regression analysis results showed the coefficient of determination to be 0.7581 and the standard error of the estimate to be 30,000.Cost Considerations According to an Apple Watch cost analysis by the Wall Street Journal of May 1, 2015, variable hardware and manufacturing costs per unit were estimated at $83.70. Cost estimates did not include intellectual property, royalties and licensing fees, shipping, logistics, and other channel costs. One analyst estimated these figures could amount to at least as much as the hardware costs.17 (Please see Exhibit 2 for smartwatch cost structure.) A reasonable variable cost estimate was $178 per unit