Question

Apple has an activity tracking app. The market demand for the app is given by P = 124 - 0.1Q. The marginal cost of producing the app is MC = 1 + 0.1Q.

1. Apple's profit-maximizing output is _________ units and their profit-maximizing price is $__________.   

2. Once Apple's patent expires and more competitors enter the market, total output in the market will rise to ______ units and the market price will fall to $_________.

Answer 1

P= 124 - 0.1Q

TR= PQ = 124Q - 0.1Q^2

MR = 124 - 0.2Q

MR = MC at profit maximization

124 - 0.2Q = 1 + 0.1Q

Q= 410

P= 124 - 0.1*410= 83

When more firms enter the market becomes competitive where profit if maximized at P=MC

124 - 0.1Q = 1 + 0.1Q

Q= 615

P= 1 + 0.1*615= 62.5

Apple's profit-maximizing output is 410 units and their profit-maximizing price is 83$  

Once Apple's patent expires and more competitors enter the market, total output in the market will rise to 615 units and the market price will fall to $62.5