Question 16:

According to the market research firm Suppli, Apple's marginal cost was $21.77 (in 2009)

for an iPod Shuffle, $187.51 (2010) for a 16GB iPhone 4, and $229.35 (in 2010) for a non-3G 16GB iPad. These products retailed for $79, $600 (though customers pay much less if they sign up for a two-year contract with AT&T), and $499 respectively.

a) How can you measure the market power of a firm?

b) Illustrate the theoretical concept of market power on a graph, assuming the firm faces a downward sloping demand curve.

c) Based on the information provided above, determine Apple's Lerner Indexes for the iPhone 4 and for the iPad.

d) If Apple is producing at the short-run profit-maximizing level, what is the elasticity of demand for the iPod, iPhone 4, and iPad?

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