When the iPad was introduced, Apple’s, Apples constant marginal cost of producing this iPad was about $220. We estimate that Apple’s inverse demand function for the iPad was P= 770 – 11Q, where Q is millions of iPad purchased.
a. What were its profit maximizing quantity and price? Show all your work.
b. Given that the Lerner’s index for the iPad was (P – MC)/p = 0.56, what was the elasticity of demand at the profit maximizing level. Show your work.