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Ahad is an entrepreneur who has developed an app for Amazon’s Kindle E-Readers that is being...

Ahad is an entrepreneur who has developed an app for Amazon’s Kindle E-Readers that is being sold through the Kindle Store. Independently, the price of Digital Books, for reading on the Kindle, has been going up. What does this mean about the likely profitability of Ahad’s app? Why? Please a quick 2- 5 sentences. Provide graphs and/or examples to illustrate where this would be helpful.  

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Answer #1

Increase in price of digital books will decrease the quantity demanded of digital books. Kindle being a complement to digital books, higher price of digital books will decrease the demand for Kindle device, thereby decreasing the demand for any Kindle App. Demand curve will shift leftward, decreasing both price and quantity. Costs remaining the same, profitability will fall.

In following graph, D0 and S0 are initial demand and supply curves for Ahad's App, intersecting at point A with initial price P0 and quantity Q0. As demand fall,s D0 shifts left to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

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