Q1.

Consider the cost function

C(Q) = 600 + 3Q + 50Q2 for Apple to produce the new iPhone smart phone. Using that cost function for the iPhone, determine the profit-maximizing output and price for the iPhone, and discuss its long-run implications, under three alternative scenarios:

1. Apple's iPhone currently has some substitutes, and currently the inverse demand for the iPhone is P = 400 - 25Q, but Apple anticipates other firms can choose to develop more substitutes in the future.
2. Apple's iPhone has no substitutes and so is a monopolist, and the inverse demand for the iPhone is expected to forever be P = 400 - 25Q
3. Apple's iPhone is a perfect substitute with RIM's BlackBerry Bold 9700 and several other smart phones that have similar cost functions and that currently sell for $400 each

Q2

The Yellowstone Club is a private golf community set on 14,000 acres in Big Sky, Montana, which counts Microsoft founder Bill Gates as a member.

Suppose typical consumer's demand for a game (round) of golf at the Yellowstone Club is estimated to be Q = 12 - 0.5 P per year, and Yellowstone's cost of providing games is $8 per game per customer. Consider three alternative sets of market conditions:

1. Assume market conditions allow the firm to package games played by each customer so that customers do not share their packages. Compute the optimal number of games in a package. And compute the optimal package price, and optimal profit.
2. Assume market conditions only allow the firm to charge a uniform price for a customer to play each game. Compute the optimal price for each game. Finally, compute optimal profit from each customer.
3. Assume market conditions allow the firm to charge a membership fee to each customer to have the right to pay to play individual games, and that customers do not share their memberships. Compute the optimal price membership fee and the optimal to charge for each game. Finally, compute optimal profit from each customer.