TERM 1

MANAGERIAL ECONOMICS

ASSIGNMENT 3&4

AJINKYA BINWADE
MBA06015
SECTION A
Answer 1:
Monopoly- It implies that there is just a single merchant of the item in the market.

Degree of Monopoly-We can survey the level of restraining infrastructure with the assistance of
flexibility of interest of the item in the market. It very well may be estimated by the
inverse{opposite} of the elasticity of demand.

Assume, in a market where elasticity of demand is interminable, and there will be no Monopoly
power. Be that as it may, if in a market where elasticity of demand. is zero, the Monopoly force will
be limitless.

There are different techniques given by financial experts to figure the "Level of Monopoly, for
example,

a) Lerner Index

b) With the assistance of Price Discrimination

c) Concentration Ratio

d) The Herfindahl Index

Apple doesn't have Monopoly in Global and Indian market on the grounds that there are a few
different players additionally working in the enterprises, for example, Samsung, OPPO, VIVO and so
on.

Answer 2:
As per Exhibit 6 (iPhone revenue and unit sales year-on-year growth) of the case study, the iPhone
unit sales (year-on-year growth) has been severely affected. There is a decline in the growth of their
iPhone sales. This has affected their monopolistic market power. In 2016, there was a decline in the
number of units sold by -8.4%.

This is due to the saturation of existing markets where they once held a monopoly as well as the
availability of cheaper alternatives with better features brought in by Chinese companies to the
global market.
Answer 3:
Following factors determine the Monopoly power in the market-
a) The price elasticity of demand- It is one of the most important factor of market
power, due to the pricing rule that is L=(P-MC)/P=-1/Ed
In price elasticity of demand when the price elasticity is large (Ed>1) the demand is
relatively elastic, so the firm has less market power. When the price elasticity is small
(Ed<1) the demand is relatively inelastic, so the firm has more market power.
b) The number of firms in a market- It means that if there is single firm in the market
so, it is act as price maker of the product and does not have any fear in the market of
losing the customers from the market. On the other hand, if there are more than one
company in the market so, it is act as a both price maker or taker of the product in
the market and also having fear of losing the customers from the market.
c) Interaction among firms- It means that when firm rigorously(continuously) compete
with each other, less market power results and if they are co-operated or act
together, so the firm can have more market power.

Some of the following constraints on Apple’s monopoly power in the Indian Smartphone
market are-
a) Challenging and Growing Competition
b) Languages and smartphones adoptions
c) Preference for android phones
d) Low per capita income and high price sensitivity of Indians
e) Languages and Smartphones adoptions

Answer 4:
Marginal Lerner
Year Price Margin% Cost Cost Index Elasticity Profit

2007 499 14% 428.142 207 0.585 -1.71 70.858

2007 599 14% 513.942 227 0.621 -1.61 85.058
 2008 599 16% 501.363 180.83 0.698 -1.43 97.637

2009 599 19% 483.992 178.96 0.701 -1.43 115.008

2010 599 22% 470.215 195.51 0.674 -1.48 128.785

2011 649 24% 493.889 196 0.698 -1.43 155.111

2011 749 24% 569.989 215 0.713 -1.40 179.011
2011 849 24% 646.089 256 0.698 -1.43 202.911

2012 649 27% 475.717 207 0.681 -1.47 173.283

2012 749 27% 549.017 209 0.721 -1.39 199.983
2012 849 27% 622.317 230 0.729 -1.37 226.683

2013 649 22% 508.167 198 0.695 -1.44 140.833

2013 749 22% 586.467 208.1 0.722 -1.38 162.533
2013 849 22% 664.767 218.3 0.743 -1.35 184.233

2014 649 22% 508.816 200.6 0.691 -1.45 140.184

2014 749 22% 587.216 220.1 0.706 -1.42 161.784

2015 650 23% 501.8 216 0.668 -1.50 148.2

2015 749 23% 578.228 236 0.685 -1.46 170.772

2016 399 21% 314.4519 160 0.599 -1.67 84.5481

2016 499 21% 393.2619 170 0.659 -1.52 105.7381
2016 649 21% 511.4769 224.8 0.654 -1.53 137.5231

The variation of elasticity over various years for different products are as shown in the table
above.

The
change
s in
marku
p over
the
years is
as
shown
in the
table
below:
XYear Model Retail Price Total Cost Changes in Markup
2007 iPhone 4GB 499 207 292
2007 iPhone 8GB 599 227 372
2008 iPhone 3G 8GB 599 180.83 418.17
 2009 iPhone 3GS 16GB 599 178.96 420.04
2010 iPhone 4 16 GB 599 195.51 403.49
2011 iPhone 4S 16GB 649 196 453
2011 iPhone 4S 32GB 749 215 534
2011 iPhone 4S 64GB 849 254 595
2012 iPhone 5 16GB 649 207 442
2012 iPhone 5 32GB 749 209 540
2012 iPhone 5 64GB 849 230 619
2013 iPhone 5S 16GB 649 198 451
2013 iPhone 5S 32GB 749 208.1 540.9
2013 iPhone 5S 64GB 849 218.3 630.7
2014 iPhone 6 16GB 649 200.6 448.4
2014 iPhone 6 Plus 16GB 749 220.1 528.9
2015 iPhone 6S 16GB 650 216 434
2015 iPhone 6S Plus 16GB 749 236 513
2016 iPhone SE 16GB 399 160 239
2016 iPhone SE 64GB 499 170 329
2016 iPhone 7 32GB 649 224.8 424.2

Answer 6:
The smartphone market in India would be a competitive market. Apple does not exercise monopoly
power in case of the Indian smartphone market. There are also a large number of smartphone
companies holding a large share of the Indian smartphone market.

In order for Apple to succeed in efforts to convert consumers in the Indian smartphone market,
Apple must adopt a competitive pricing strategy. Apple needs to identify price points that are
strategic, and advantageous to it.

Since, the players in the Indian smartphone market have lower prices for smartphones with
premium features (e.g. OnePlus phones by the BBK), it would be wise for Apple to adopt such a
pricing strategy. Also, the consumers in India have a lower average income when compared to other
markets. This reinforces the idea that Apple should introduce a competitive pricing strategy.

Answer 5:
In simple word Pricing Power means that the how much the change in the price of the product
influence the demand of the product in the market.

In case of Apple, Apple is always come in the market with expensive or costly smartphones and
mainly targeting the rich people in the market. Apple is always able to make economic profit from
the market year on year. As the new companies enter into the market with lower price segment did
not vanish the Apple from the market and Apple is also starting manufacturing smartphones for
middle income group in the market. In below given table I calculated the profit of Apple year by
year-

Margin
Year Price % Cost Profit

2007 499 14% 428.142 70.858

2007 599 14% 513.942 85.058

2008 599 16% 501.363 97.637

2009 599 19% 483.992 115.008

2010 599 22% 470.215 128.785

2011 649 24% 493.889 155.111

2011 749 24% 569.989 179.011
2011 849 24% 646.089 202.911

Answer 7:
No, there is no one-to-one correspondence between price and quantity supplied in a monopolistic
market. The output of a firm that exercises monopolistic power is dependent on the marginal cost as
well as on the demand curve. In case of a demand that is less elastic, the monopolist can charge a
higher price.

Also, in case of a monopolistic market, the price is not equal to marginal revenue and marginal cost
is not equated with price. A firm enjoying monopoly power is affected by the price elasticity of
demand. The monopolist has to keep in mind the demand curve while planning the output.

Answer 8:
a. It is operating in the short run. There is a fixed cost of $10. Fixed costs are found only in short run.

b.

Q1(P) + Q2(P) = Q = 60 – 3P + 40 – 2P = 100 – 5P

Q = 100 – 5P

5P = 100 – Q => P = 100/5 – Q/5

P = 20 – 0.2Q

Hence Total Revenue when Q units are sold =>

TR = P * Q

= 20Q – 0.2Q2

Marginal Revenue can be obtained by differentiating Total Revenue w.r.t. Q

MR => dTR/dQ = 20 – 0.4Q ----> (1)

Marginal Cost can be obtained by differentiating the Total Cost

MC => dTC/dQ = 2*1/2*Q = Q -----> (2)

(1) = (2)

20 – 0.4Q = Q

20 = 1.4Q => Q = 20/1.4 = 14.29 (Profit Maximizing Quantity)

We can now calculate Price, P.

P = 20 – 0.2Q = 20 – 0.2 * 14.29 = $ 17.142 (Profit Maximizing Price)

Calculating Total Revenue: TR = P * Q = 17.142 * 14.29 = $ 244.96

Total Cost = 2 + ½ * Q2 = 2 + ½ * 14.29 * 14.29 = 2 + 102.10 = $ 104.10

Profit = TR – TC = 244.96 – 104.10 = $ 140.86

c.

Q1(P) = 60 – 3P1 => 3P1 = 60 – Q1 => P1 = 20 – 0.33Q1

Q2(P) = 40 – 2P2 => 2P2 = 40 – Q2 => P2 = 20 – 0.5Q2

TR1 = P1 * Q1 = 20Q1 – 0.33Q12

TR2 = P2 * Q2 = 20Q2 – 0.5Q22

Marginal Revenue for Group A

MR1 = dTR1/dQ1 = 20 – 0.66Q1 ---> (1)

Marginal Revenue for Group B

MR2 = dTR2/dQ2 = 20 – Q2 ---> (2)

Marginal Cost for Group A

MC => dTC1/dQ1 = 2*1/2*Q1 = Q1 ----> (3)

Marginal Cost for Group B

MC => dTC2/dQ2 = 2*1/2*Q2 = Q2 ----> (4)

Calculating Quantities:

(1) = (3)

20 – 0.66Q1 = Q1 => Q1 = 12.04

(2) = (4)

20 – Q2 = Q2 => Q2 = 10

Calculating Price

P1 = 20 – 0.33Q1 = 20 – 0.33 * 12.04 = $16.02

P2 = 20 – 0.5Q2 = 20 – 0.5 * 10 = $ 15

Total Revenue = P1 * Q1 + P2 * Q2 = 12.04 * 16.02 + 10 * 15 = 192.88 + 150 = $ 342.88

Total Cost = 2 + 0.5 Q2 = 2 + 0.5 (12.04 + 10)2 = $ 244.88

Hence, Total Profit = 97.999 ~ $ 98