Apple outsources production of iPhones, iPads and other electronic devices to contract manufacturer, Foxconn, with 800,000 workers at factories throughout China. Faced with increased competition for labor, Foxconn has raised wages and increased benefits for its workers. In April 2012, Samsung sued Apple for violating various Samsung patents to produce mobile phones. (Sources: "Foxconn to raise salaries by 20% after suicides", Financial Times, May 28, 2010. "Samsung sues Apple on patent-infringement claims as legal dispute deepens", Bloomberg, April 22, 2011.)
Using a suitable diagram, explain how Apple should adjust its production and price if Foxconn raises prices for contract manufacturing. (Note, given Apple's products are protected like patents, assume they are operating as a monopoly.)
Suppose that Apple must pay a royalty on each mobile device that it produces. How should Apple adjust its production and price in response to the royalty?
How would your answer in (b) change if Apple must pay Samsung a lump sum in damages rather than a royalty per unit produced? (Note: We know from the article I passed out in class that Samsung ultimately had to pay Apple for patent infringement. But for purposes of this question, let's assume that Apple has to pay Samsung.)