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a) In 1994, the marginal cost of producing the Power Mac was about $1,500 per unit, and a rough estimate of the monthly demand curve was: P = 4,500 – .15Q. At the time, what was Apple’s optimal output and pricing policy?
b) By the end of 1995, some analysts estimated that the Power Mac’s user value (relative to rival PCs) had fallen by as much as $600 per unit. What does this mean for Apple’s new demand curve at end-of-year 1995? How much would sales fall if Apple held to its 1994 price? Assuming a marginal cost reduction to $1,350 per unit, what output and price policy should Apple now adopt?
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